By Mark Huffman
ConsumerAffairs.com
August 24, 2009
The first phase of the Credit Card Accountability, Responsibility
and Disclosure (CARD) Act of 2009 went into effect last week, with the
rest of the rule changes taking effect in February. Congress changed
the law to help consumers, but like many of Congress's actions, this
one is producing unintended consequences.
True, the new law addresses some of the industry's long-standing abuses. It prevents lenders from raising rates on existing balances. Payments must be applied first to the part of your balance that has the highest interest rate. And universal default raising your rate because you happen to be late paying some other, unrelated bill will be a thing of the past.
But banks will still make profits, and if they don't get your money one way, they'll try to do it another way that isn't impacted by the new law. In fact, that process has already started. with credit card companies using the time between last May's passage of CARD and the effective date to do all the things they will soon be prevented from doing.
Many consumers who considered themselves good credit card customers have had their accounts unilaterally closed by the lender. Others have had their rates hiked substantially. Still others have seen their minimum monthly payments almost double.
Now, some consumers will be charged for the privilege of carrying a credit card. Citigroup announced last week that it will begin imposing an annual fee on account holders. Other banks are expected to follow suit.
To keep the credit you have and avoid new fees, there are a number of steps consumers should take.
First, if you have credit, use it. Most of us have one or two credit cards we like to use and tend to ignore the rest. In the new credit environment, banks will be quick to close accounts that lie dormant. An open credit line is an element of risk for a bank. If it's not providing revenue, the bank sees no reason to keep it open.
To prevent the lender from closing your account, try to use each card for a small purchase once every three months. When the bank reviews your account, it will see some activity and will be less likely to close it.
Second, don't add to your balances. In fact, pay them down if possible. Banks have been reducing credit limits and have targeted consumers with high debt to credit ratios.
Personal finance experts suggest a debt to credit ratio of 10 percent is ideal. If you don't carry a balance on the card paying it off in full each month you have almost nothing to worry about in that regard.
Third, look around for lower interest rate alternatives if you're carrying a balance on a major bank card. Almost all credit card issuers are raising rates to make up for the fact that delinquencies are on the rise.
That said, it will be very hard to find an interest rate below 10 percent in this new environment, even with stellar credit. But one often overlooked credit source is a credit union. By joining a credit union you should be able to get a credit card with a lower than average rate.
Finally, make sure you pay your credit card bill on time. The penalty for not doing so is steep, and will likely get steeper. Not only will you pay a late fee, the penalty rate for a missed payment could be in excess of 30 percent.
As the credit environment changes, consumers will have to stay alert. That means reading every communication that comes from your lender. It could contain important changes to your account, and not acting on the information could result in needlessly higher fees and interest rates in the new credit universe.
