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Stay Away From Me, Credit Card Crisis

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Bailout. Meltdown. Housing crisis. Credit crunch.

If these words don't instill some sort of panic in you -- however contained -- then you are a rare bird. Granted, unless you were one of the thousands turned out on Wall Street, the hundreds of thousands who lost their home to the bank from a subprime mortgage, or the countless numbers whose bad credit is finally catching up to them, you still may not be affected by any of it.

But it will. Unless you still keep your money under your mattress -- and I don't doubt that some people do -- the financial mess is going to hit you, the most likely way being through your experiences with credit.

Here's why: As debt grows, credit card companies have to tighten their standards on consumer credit. Americans can no longer rely on home equity and other assets to leverage their debt because of their decreased value, so credit accounts are their final hope.

In June, consumer credit rose at an annual rate of 6.5 percent to a record $2.459 trillion, the Federal Reserve reported this month. Revolving credit -- the category that includes credit-card debt -- jumped 8.4 percent. Delinquencies and charge-offs are at their highest levels in years.

All this means that the credit card companies are scared out of their mind.

Fear makes people panic and run. But what it does to companies -- who are facing immense demand and less desirable applicants -- is make them more selective -- and often downright picky. People left and right are having their credit card applications turned down -- as much as 85 percent of online applicants are rejected. This is making for some sad, rejected consumers: application volume has been relatively flat and the number of shoppers fell 39 percent compared to a year ago.

From Netbanker: "Although [June] data only shows application volume, there has likely been a sharp drop off in approvals, as underwriting standards stiffen and credit-worthy applicants stay on the sidelines."

And among those who do have credit, many are unhappy with their current plans. Many plead victim to the "evil" credit card companies, who take advantage of shopping addictions and allow customers to carry ridiculously high balances -- at a ridiculously high interest rate. Others blame the marketing and aggressive promotions surrounding new offers -- "I just wanted the miles!"

And the lack of knowledge surrounding credit is appalling. Fewer than one-third of Americans, for example, understand that credit scores indicate risk of not repaying a loan, according to a July report from WaMu and the Consumer Federation of America.

Young adults are the worst of all: some 78 percent of those between the age of 18 and 24 said their knowledge of credit scores was fair to poor; 62 percent had fair to poor knowledge of credit reports.

The report found that US consumers could reduce card finance charges by $105 annually if they raised their score by 30 points. (If all did so, total annual consumer savings would be an estimated $28 billion.)

No one, it seems, has done a very good job at explaining why the increased amount of rejections, why the less-than-perfect credit plans, and why it's so important to maintain a good credit score. Most importantly, no one has stepped in and shown consumers all of the options available to them.

Other options, you say? Yes, there are options. This is the eBay age of the "transparent marketplace," where the liquidity of information on the Internet can empower consumers to make better choices and create customizable solutions.

We're hyper-connected. We're hyper-aware.

So, although spending less would certainly help you -- though it surely won't help the economy -- the best thing you can do is use the biggest, broadest, easiest tool out there to help you understand your personal credit score and see what your best options are.

Here are a few of the online services that you can use to get and monitor your credit status, and, going one step further, to get credit card offers.

Note: These are only the FREE services. There are plenty of companies that offer paid subscriptions, like Equifax, FreeCreditReport.com, and myFICO, but there's no reason you should be paying for something as simple as this.

Know Before You Apply: KnowBeforeYouApply.com uses real credit data to match up consumers with their offers, so they -- you guessed it -- can "know" what they'd most likely be approved for, before they actually apply. It has a clean, easy-to-use interface, and the sign-up process is much less involved than most other services.

Credit Karma: Credit Karma jumped into the scene last year boasting free credit scores, but users should take note that it's another FICO-clone and scores were found to be significantly higher than those actually sent to lenders.

Quizzle.com, Mint.com: Both of these services offer credit scores within the framework of a larger money management system, which may be annoying for people who don't want to deal with importing their bank information into a central system. Neither focus much on actually providing high-quality, customized credit offers based on users' profiles.

Billshrink: This company found its initial niche in the cell phone plan market, helping people find the best mobile plan according to their overall use, geographic area, etc. Last week it busted into the credit market with the same idea - to give users the best credit card options based on their estimated use and typical payment behaviors.