Feb 16, 2010

New Credit Card Rules and Your Credit

If you are trying to reestablish good credit, you may want to wait until the rest of the new credit card laws go into effect. Under the new laws, there are several protections for ‘subprime’ credit card holders, including:

1. A limit on fees. Under the new laws, credit card companies can’t charge more than 50% of your credit limit in fees for a new card, even if your credit is less than perfect. Additionally, they can only collect up to 25% of your credit limit in fees up front. The rest must be spread out over several months. You also can’t be hit with “convenience” fees when you pay by phone or online, provided that you are paying well before the due date.

2. No over-limit fees (without opt-in). No longer will credit card companies be able to charge you an over-limit fee on a case-by-case basis. You have to opt-in to the fees, otherwise, your card will simply be declined, and no fees will be incurred. Staying away from over-limit fees is a good way to avoid a hit to your credit scores as well.

3. No multiple over-limit fees for a single transaction. If you do opt-in to the fees, the credit card companies will only be able to charge you once. For example, if you go over your limit one month, but make no new purchases the next month, they cannot charge you a second over-limit fee, even if your balance remains higher than your credit limit.

4. 45-day notice required for changes in terms. If a credit card company decides to change any terms of the card, they must provide 45 days’ notice. You have the right to opt out of the changes, and pay down your balance, but in many cases, if you don’t accept the changes, the account will be closed.

5. Consistent due-dates. Due dates for your credit card bill must be consistent from month to month. This helps to eliminate the potential damage to your credit scores due to fluctuating payment dates.

Even with these changes, getting new credit may not be simple. In some instances, you may want to opt for a secured credit card in order to guarantee the best rates possible. If you’re having trouble deciding what kind of credit card would be best for you, it’s important to do the research first. Applying for several different credit cards at once will harm your scores, so narrow down your choices and only pick one or two applications so send in. The new credit card laws can help you to improve your credit scores, but only if you use your credit wisely.

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Dec 22, 2009

Loopholes in the New Credit Card Law: Why the New Regulations Could End Up Costing You More

As the new credit card laws are phased in between now and February of 2010, credit card companies across the board are making changes that could end up costing you more for the credit you already have. These changes can also have a detrimental effect on your credit scores, making it more difficult for you to obtain new credit, even if you have a solid payment history.

Under the new credit card regulations, companies are forbidden to change interest rates on pre-existing balances for fixed-rate credit cards. However, many credit card companies are switching to variable rate cards for most of their customers. This means that as the prime interest rate rises, so will the amount of interest you pay on your credit cards. This ultimately leads to higher balances which are harder to pay off, and in turn can damage your credit score by causing you to utilize more of your available credit limit than you normally would.

If your credit card company switches you from a fixed-rate credit card to one with a variable interest rate, you can reject the change. However, in most cases this means that your credit card will be canceled at the end of the current agreement cycle. When this happens, if you’re still carrying a balance on the credit card your credit scores will drop due to the fact that your credit report will show a balance higher than your available limit on that card.

When dealing with a credit card that has been switched to a variable interest rate, it’s generally in your best interest to continue making payments until you have paid the balance of that credit card entirely. Then, if you decide to cancel the card you can do so without having as much of a negative effect on your credit report. Currently, because interest rates are generally low, you may even be able to save money versus your fixed interest rate, assuming you can pay the card off in only a few months.

Another option which may help you to keep your credit scores healthy is to pay off the variable rate card, and then use it for purchases that you can pay in full each month. This will help to prevent any reduction in your credit limits, as well as avoid ‘inactivity’ penalties that some banks have begun to assess. If you have credit cards that you haven’t used in several months, now is the time to do so. Make a small charge to keep the account active, and pay it off as soon as possible. Otherwise, you run the risk of owing fees due to inactivity, which can pile up and cause late payments and higher interest rates overall.

Regardless of whether you decide to keep the account or close it, the important thing to remember is to keep the account open until the entire balance is paid off. In this way, you’ll avoid a major hit to your credit scores, which will save you money on any new credit that you apply for.

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Nov 5, 2009

New Credit Laws – Tactics the Credit Card Companies are Using to Charge You More

When the new credit card laws went into effect in late August, it was seen as a good first step to creating fair credit terms for all consumers. While this is still the case, many individuals may be facing higher payments than they were under the old laws. This is due to changes the credit card companies have made in an effort to reduce potential losses due to the new regulations. If you’ve been hit with any of the following tactics, there are a few things you can do to help improve or maintain your credit scores.

Last Minute Interest Rate Hikes – Many credit card companies sent out notifications detailing higher interest rates and other terms in advance of the new credit card laws. Some of these notifications may be confusing to consumers, due to the fact that the listed changes may not take effect for several months. Here’s the bottom line: if you received a notice of a change to your credit card’s terms before August 20th, you only have 15 days to opt out, even if the proposed changes don’t take effect until months later. Don’t wait to take action, and be sure to read the fine print in order to avoid having your account closed, or assessed additional fees.

Changes to Minimum Payments – Some credit card companies are also raising the amount you have to pay each month if you carry a balance – up to 5% from the typical 2-2.5% seen in years past. While you can’t always opt out of these changes, in some cases you may have the option to write in and retain your old rates. Be careful with this option, however, as some companies will close your account if you opt out of their new terms.

Increased Penalties for Late-fees and Over-limit Fees – While these types of penalties are easy to avoid if you pay your bills on time and stay within budget, credit card companies are also reducing consumers’ credit limits without providing any notice. Because the credit card companies aren’t required to inform you about changes to your credit limit, you could rack up over-the-limit fees without realizing it until your statement arrives in the mail. Your best defense against this is to sign up for alerts that will let you know when you are approaching your limit, coupled with regular vigilance through online access or customer service, so that you always know your limit before you go shopping.

Another way to avoid paying extra: Opt out of over-limit purchasing altogether.  Companies are now required to allow you to do this, but you will have your credit card declined for any purchase if that purchase would take you over the limit. If you typically keep your balances low, but aren’t sure about your credit limit, this is one way to avoid getting hit with additional fees.

Most credit card companies allow for automatic payment of your bill, either in full or the minimum balance, monthly. By taking advantage of these programs, you can eliminate the chance that you’ll be charged a late-payment fee on your accounts as well. Just keep track of your due dates and be certain that you have the funds readily available to cover the automatic bank draft, or you could wind up paying just as much, or more, in overdraft fees from your bank.

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Oct 27, 2009

Credit Cutbacks – Has Your Limit Been Slashed?

In an effort to minimize potential losses as a result of the new credit card laws that went into effect on August 20th, many credit card companies are slashing credit limits for customers who carry a balance from month to month. This can be true even if you’ve never missed a payment, and have been responsible in paying your other bills on time.

While changes in interest rates require a notice, these reductions to your credit limit can come without warning, leaving many uninformed about the reduced limits until they receive their monthly statement. Reductions of hundreds or thousands of dollars are not uncommon, and can really put a dent in your credit score, regardless of how responsible you are when it comes to making on-time payments each month. What’s worse, you may be hit with over-the-limit fees on newly reduced balances, when your original spending was well-within your old credit limit.

Many consumers are surprised to realize that unlike interest rate changes, changes made to the credit limit can be done at any time, without informing the consumer. This means that even if you have a $1000 credit limit today, there is nothing stopping the credit card company from lowering that limit to $800, or even $500 tomorrow. The only way to stay informed is to check your account information regularly. If your credit card company offers online access to your account, it may be helpful to check your credit limit in this way.

Another option is to set up an alert that will send you an email or text message when you are approaching your credit limit, but this may not be as helpful in terms of saving your credit. Why? The ratio of how much you spend on your cards, versus your available credit limit is a factor in calculating your credit scores. If you wait until you are only a few hundred dollars away from your limit to set an alert, the damage to your credit score may already be done. While you will avoid any sneaky over-limit fees, you won’t be able to prevent the hit to your credit score that comes from over-utilization of available credit.

If one credit card company reduces your balance, others may follow suit as your available-credit-to-debt ratios will now categorize you as a higher risk. While the logical option would seem to be avoiding the use of your credit cards altogether, this choice can backfire, as many credit card companies are actively closing accounts that do not have any activity after a few months. Your best option is to continue using your cards, and pay off the balances each month if at all possible. This will keep you from having an account closed for inactivity, and it will also keep you from being targeted for credit limit reductions due to carrying a balance each month.

While there is no law that requires your credit card company to keep you informed about your credit limit, you can remain informed by keeping a close eye on your balances, either online or via customer service. Don’t let surprise credit limit reductions derail your good credit – set up alerts, check your balance regularly, and pay off as much as you can to avoid unpleasant repercussions.

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Jul 6, 2009

Credit Card Agreements – Understanding the Fine Print

With the passage of the Credit Card Holders’ Bill of Rights, credit card companies will be required to make some changes in their disclosure practices when it comes to credit card agreements. Until these changes go into effect, if you are shopping for a credit card, it’s important to understand the terms and conditions included in the fine print of your credit card. Otherwise, you could find yourself owing hundreds more in unexpected fees and interest, which in turn, may damage your credit scores. Below is a list sampling the most common terminology found in credit card agreements, and what these terms actually mean to you, as a consumer:

  • “Any disputes related to this credit card account are subject to binding arbitration…” Binding arbitration means you are not allowed to file suit in a court of law over any disagreement that you may have with the credit card company. It eliminates the possibility of class action law suits, and any number of legal rights. There is no way around this – if you use the card, you are agreeing to the binding arbitration clause. Be aware that your credit card company will most likely be the one who chooses the arbitrator as well, and your usual options for legal relief will be severely limited should you decide to pursue legal action.
  • One to watch out for if you are taking advantage of a balance transfer to a lower-interest card: “Balance transfer fees are added to the purchase balance and are subject to the APR for purchases…” This basically means that any fees associated to your balance transfer will be treated as if you made a purchase, and will be added to your credit card balance. In addition, you will pay interest on that balance transfer fee. Something to keep in mind if you are close to your limit with the balance that you are transferring – the balance transfer fee may push you over, and cause over limit fees, just as a purchase would.
  • Here’s the phraseology that indicates your credit card is subject to universal default laws: “If the cardholder is reported as delinquent on an account with any other creditor, we may increase the APRs on your account up to the maximum default APR…” Universal default is one of the many terms that will be modified under the new Credit Card Holders’ Bill of Rights, but until that goes into effect, you may be charged a default rate on all credit cards which have this phraseology, even if you’ve only missed a payment with one of those creditors.

The terms and conditions that accompany any new credit card are often lengthy and complex – one of the reasons that many consumers don’t bother to read them. However, this strategy can cost you money and hurt your credit in the long run. Understanding the fine print will help you to make a more informed choice when it comes to your credit, and will help you choose the best credit cards for your overall financial health.

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