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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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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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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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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• “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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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.

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• 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.

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Amongst the circumstances that could cause you to be flagged for a higher rate, high balances on other cards, along with having an adjustable rate mortgage are two of the most common. So what can you do to protect yourself from an unexpected increase? While there is no guaranteed prevention plan, there are some measures you can take that will help to minimize the chance that your credit card is subjected to these harsh new penalties.

Minimize your balances – if you carry a high balance on one card, that credit card company may consider you to be a risk of default and may lower your limit and increase your rates, even if you’ve been paying on time. This in turn can cause a spillover effect, wherein your other credit card companies follow suit, reducing the limit and upping the rates on cards you barely use. The solution? Carry a smaller balance across all of your cards, rather than a high balance on only one. In this way, you have an active account, but the balance is small, which can be seen as less of a risk.

Pay more than the minimum – if you consistently pay more than your minimum balance, there is a chance that your credit card company will see you as a better risk than those who are only making their minimum payments. If you can afford to pay more each month, do so – not only will it help to keep you out of the ‘high-risk’ category, it will also save you money on interest.

Read your credit card terms – many credit card companies have updated their terms of service to include language that allows them to raise your rates and lower your limits if you are late for even one payment. And late may be defined as 12:01 AM on the due date or the day after. Make certain you know what your terms are, and be prepared to negotiate if you feel you aren’t being treated fairly. If you’ve been a steady, good-paying customer for years, some credit card companies may be willing to negotiate better terms. If not, then you may have to adjust your spending accordingly.

Credit card companies have always been business first, and the consumer now, as always, must be prepared to take proactive steps to build and maintain positive credit, regardless of what the credit card companies decide to do.

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If you are one of the “lucky” ones who received the paid offer, you may be tempted to cancel your card and cash in while you can. However, if your credit score is already marginal, closing an established account could send your scores dropping even further. Even if you have good credit, canceling an established account will lower your score, possibly placing you in a different risk category, which could trigger further adjustments from other credit card companies. And if for some reason you don’t pay off your balance by the deadline, the $300 incentive is lost, leaving you with a damaged credit score and no reward for your efforts to pay down your debt. Of course, if you paid down your debts without taking the incentive to close your account, your savings in interest alone could top $300 depending upon your initial balance.

Because credit card companies often raise rates, fees, and other costs based upon activity on another account, closing your already established account may cause you to have higher interest rates on the cards you do decide to keep open. This can create a cascading-effect that lowers your overall available credit, which, in turn, can lower your scores even further if your debt-to-available-credit ratios fall below a certain margin. This can make it difficult for you to get a new credit card if you decide to open another account to replace the one that you’ve closed. Even if you don’t decide to open another account right away, the hit to your credit score can cause problems in other areas, such as insurance rates, interest rates on loans, and interest rates on any existing lines of credit.

Your best bet when it comes to keeping your credit score healthy is to pay off your credit cards, and leave the accounts open. Use the cards for incidental purchases, and pay them off again as quickly as possible. Keep your card active, and your balance low, and you may be able to avoid getting hit with a rate spike, or an unexpected cancellation. Getting free money may seem like a great incentive to cancel your card, but when compared to the potential downsides to your credit score, your best option may be to turn down free money in exchange for a little extra financial discipline.

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