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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.

Posted in credit card companies, credit card laws, credit scores, interest rates, late fees, overlimit fees | No Comments »



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.

Posted in credit card companies, credit card laws, credit scores, overlimit fees | No Comments »



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.

Posted in Credit Card Holders' Bill of Rights, balance transfer, credit card companies, credit cards, credit repair | No Comments »



Jun 5, 2009

Double Billing Cycles: Is Your Credit Card Company Charging You for Paid Balances?

It’s common knowledge that paying down your credit card balances is good for your credit, and can help you to improve your credit score. However, your credit card company’s billing practices may make repayment more difficult over the long term. Some credit card companies even charge interest on the same balances twice – regardless of whether you’ve paid the balance or not. It’s a practice that is typically referred to in the disclosure of credit card terms as “two-cycle average daily balance”. What it amounts to, however, is double billing, plain and simple.

How Double Billing Cycles Work

When a credit card company uses the double billing cycle method to calculate your interest rates, it takes the average of your previous month’s balance and your current month’s balance. What this means is, if you have a balance of $1000 in January, and a balance of $200 in February, the credit card company will average these two balances together and charge interest on the amount of $600. That is $400 more than what you currently owe on the card, and is in effect, interest on a balance that has already been paid.

The double billing cycle creates additional interest charges that can make it very difficult for you to pay off your balance entirely, if you are in the habit of keeping a balance on your card. In particular, it punishes individuals who try to pay down their balances all at once, or who have balances that fluctuate regularly. On the example above, on a credit card with a 12% interest rate, you would pay $1.64 in interest charges for February’s balance, based on the Average Daily Balance method. Under the Double Billing Cycle method, your charges would be $4.93 – three times as much.

What You Can Do About Double Billing Cycle Charges

If you have a card that uses the double billing cycle method, you may want to consider transferring your balance to a card that uses the average daily balance method instead. Otherwise, if you want to minimize the hit that double billing cycle charges can cause, you should gradually pay off the card, avoiding any steep pay-offs that will effectively bill you for money you’ve already given the credit card company.

When considering a balance transfer, make sure you do the math. Factor in any balance transfer fees that you may be charged, and compare those charges to what it will cost you to just pay off your card – you may come out better by just paying the card down, if there are excessive balance transfer fees. Other considerations you will want to keep in mind:

1. The credit limit on the new card – don’t transfer a high balance to a card if that will max out the credit limit. Anything that negatively impacts your available credit to debt ratio will have a negative impact on your credit score as well.

2. The introductory period for finance charges – if you transfer the balance, make certain that you can pay down the balance before your introductory period is up. And make certain that the interest rate applies to the balance transfers as well.

Keep in mind that some credit card companies have recently started closing accounts that do not have any balance or recent activity, so you may wish to keep a low balance on a credit card that uses the double billing cycle method if you’ve had the card for awhile and it has a good history of repayment. By staying informed about what your credit card company is really charging you, you can avoid excessive fees and keep your credit score healthy.

Posted in credit card companies, credit cards, double billing cycles | No Comments »



May 12, 2009

Credit Card Holders’ Bill of Rights: Hype or Help?

While it’s not official yet, the aptly named “Credit Card Holders’ Bill of Rights” is one step closer to becoming law. The bill was recently passed by the House of Representatives, leaving the Senate to take up the issue next – if passed, the new laws would go into effect in July 2010. As consumers struggle in the current economic downturn, the recent interest rate hikes on credit cards across the board have been met with disapproval on many levels. However, credit card companies and their lobbyists continue to push against this new reform. So what will the Card Holders’ Bill of Rights mean to you if it passes? Among the proposed changes that consumers can feel hopeful about are:

  • An end to Universal Default – credit card companies will no longer be able to charge you the default rate on your credit card just because you’ve missed a payment to another card issuer.

  • Prevention of double billing cycles – credit card companies will be prevented from using your past billing cycle to increase your interest charges.

  • No more retroactive rate increases – rate increases will no longer be applied to past balances, or past billing cycles.

  • Mandatory 45 days notice of rate increases – if your credit card company wants to raise rates, it will have to notify you 45 days in advance. This gives the average consumer more time to shop around for a better rate.

  • Limited Fees on Subprime Credit Cards – no longer will credit card issuers be able to charge fees upwards of 90% on subprime cards. The new legislation will put a cap on the fees at 50% of the card balance, with only half those fees allowed to be payable at the account opening.

Needless to say, credit card companies are lobbying hard to avoid these new regulations. They claim that credit will be more difficult to obtain for the average consumer if they are not allowed to continue their current billing practices. Whether or not the bill is ultimately approved, credit card rates are unlikely to lower any time in the near future, as the companies attempt to offset losses expected as credit card defaults continue to climb due to the rise in unemployment across the country. Regardless as to whether or not the bill passes, there are some steps that the average consumer can take to minimize the impact of the current credit crunch:

1. Keep your balances low – lower balances means lower payments in terms of interest.

2. Pay all credit card bills early – make certain that you get the payment in well in advance of the due date, as many credit card companies begin charging late fees if the payment is even one minute late.

3. Read the fine print – many credit card companies have started raising the interest rates on all customers, even those who pay on time regularly. Make sure that your current card agreement is one that you can live with.

If the Credit Card Holders’ Bill of Rights does pass, it will be a huge step forward for individuals who want to build and maintain their good credit. The more transparent credit card companies have to be in their billing practices, the easier it is for consumers to make an informed choice about who to turn to for their credit card needs.

Posted in Credit Card Holders' Bill of Rights, credit card companies, credit cards | No Comments »



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