5 Moves to Make Ahead of the New Credit Card Law

by Connie Prater Tuesday, February 9, 2010 provided by

With new regulations starting in less than a month, you may need to take stock of your credit card portfolio to determine which cards' terms are changing to your benefit and which feature changes that can hit you in the wallet. The most important thing to do, says Lauren Bowne, staff attorney at San Francisco-based Consumers Union, is be aware of your card terms. So much has changed in recent months that consumers need to pay attention to what is and isn't featured in the credit card. "Even if you're the person who pays off your balance and doesn't even have any credit card debt," says Bowne. "They might get a notice that says they're getting a $100 annual fee. Even people with stellar credit and stellar credit payment histories need to pay attention." Here are five smart credit card moves to make before Feb. 22: 1. Consider waiting to get new credit cards until after Feb. 22 because new accounts are protected from interest rate increases for the first year. As issuers compete for new customers in the new reform law landscape, there may be good deals and offers for people with good credit. 2. For existing accounts, consider doing a balance transfer from higher interest rate cards to accounts with lower APRs. Some issuers are offering good customers balance transfers of at least a year. Remember that there is a cost of 3 percent or 4 percent of the amount transferred, so weigh that decision carefully. Also, take note of what the new interest rate will be AFTER the promotional period ends. If it's higher than the rate on the old card or only a few points lower, it may not be worth it to switch. 3. Have a Plan B backup card or two. Issuers can still lower your credit limit and close your account without advance notice. Make sure you have more than one card as a backup in case this happens to you and you need a credit card for emergencies. 4. Charge a small amount on those other cards every other month and pay it off in full when the bill comes. This avoids any dormancy fee that may be assessed and may prevent the company from closing the account for inactivity. Some issuers require a minimum amount of charging to avoid inactivity fees, so check your terms. 5. Young adults' access to credit will be restricted by the new law. For college students or anyone under 21 who is responsible with credit, the best move could be to get a credit card now while you still can on your own. After Feb. 22, you will have to get an adult (over 21) co-signer and may be asked to show proof you have the ability to pay. Some Advice Doesn't Change

" She adds: "At least now.") Here's how to make sure your credit is safe from a revenge-seeking ex. it may be better to keep the cards you currently have -. your credit card due date will be on the same day each month. For many.and costly -. The new law requires that credit card issuers notify you of changes to your account.can hurt your credit score. some of them even more so.even if the terms are worse.In addition to the moves to make before the law takes effect. get help from an accredited nonprofit credit counselor. Don't go overboard. Your monthly credit card statement will feature a toll-free number to call for help. due dates and grace period). The credit card reform law requires that issuers prominently display a toll-free number that consumers can call to get the names of at least three consumer credit counseling agencies that have been approved by the U. your past partner may ring up debt that you'll be responsible for and may even try to borrow money in your name. Stay on top of your mail. (See "Credit card revenge spending. Even though the credit card law gives you a 60-day window for late payments before banks can impose penalty interest rates on existing balances.S. It will help you pay your credit card debt off faster. If you're closing or adding new accounts and about to apply for a loan. Pay more than the minimum amount due. Protect personal credit cards. luckily. That means you can't leave that mail unopened on the table for a week.." 7 ways to protect against being a victim of credit card revenge While you can't shield against a broken heart. the more things you've got to juggle and the more things you've got to know. She recommends marking your calendar to remind yourself when promotional rates end so that you can be sure to pay off the balance before higher interest rates begin on those accounts. Making too many changes within a short period -." it is illegal for anyone to use your individually held credit accounts without your permission -- . from the consumer group. balance transfers and cash advances. Pay your bills on time. Bowne." Bowne says. fees. good credit card habits remain important. bankruptcy courts for credit and debt management counseling. According to Jim Randel. recommends consumers create a list of their credit card accounts that includes key terms (i. 1. payments not received by the due date will show up as bad marks on your credit report. "It requires a lot of organization and a lot of time. Sharing finances may have felt right when you were a happy duo. Some changes are likely to have deadlines and time elements that can hurt you financially if you don't act quickly. you can safeguard your credit By Erica Sandberg The end of a relationship can be the start of serious financial problems. that could be a wake-up call.breakup. Without taking the proper precautions.e. the interest rates for purchases. but it can make for a complicated -. "The more credit cards you have.as in opening or closing several accounts at once -. author of "The Skinny on Credit Cards. Closing an account that you've had for a long time can negatively impact the portion of your credit score related to credit utilization ratio. The new law mandates that your billing statement include a prominent notice of how long it will take you to pay off your debt. If you're having trouble paying your bills.

In the event that there's a balance on a cosigned card. "if the dissolution is hostile. and if your ex can knows your online ID and passwords. Discuss what you want to do with joined accounts and how you will each pay for combined debt. "Depending upon your state's laws. but you may get more at no cost if you suspect fraud. Simon Think it costs a lot to borrow on your credit card now? Make a late payment and your interest rate could jump to more than 30 percent. Still. if the credit account was granted to you and you alone. an attorney in Dallas." Close co-signed and authorized user accounts. It is more important to protect yourself against wrongful debt than any ding you may get on your credit report for closing an account. pulling your own credit report doesn't impact your credit score. but there is a lot you can do to safeguard your credit. Always be in possession of the card. 4. And contrary to popular belief. However. the amount the other person charges may exceed the award limit for which you can sue. 7. Sometimes it makes sense to pay for help and guidance. If you are married. Monitor your credit report. the other will pay that on the other. While you can take the matter to small claims court (where you represent yourself). After all. Credit card penalty rates can top 30 percent. you may decide to take them to court. 6. but it's often overlooked. make a point of checking the reports if you feel the other person could compromise your credit. you will probably have to pay the debt off first. any debt that the other person charges to the account after that date might be theirs alone. change them immediately and make them un-guessable. an extra safety step may be in order. Don't ignore what can happen to your finances and credit during and after a love split. If you are really worried your ex will open new cards in your name and leave you with the bill. However. Default interest rates -. The current national average . Tying up loose ends now can result in far less money spent on legal fees later. Talk with the other person. if the other person does use credit cards when they weren't supposed to. as well as loans and lines of credit you didn't pursue." says David. Look for any debt you didn't incur.2. Speak with a lawyer. Look into a legal separation. You are entitled to one free credit report per year from each of the credit bureaus. 3. Tip: Transfer what you owe to another account that's in your name only and then close the original. says Randel. even if you have to pay for them. you can only dispute them if you know they exist. An alert will make it much harder for someone to fraudulently open an account because the credit issuer will have to call you and verify your identity before granting a line of credit or a loan. Turn over any cards that may be the other person's and ask that he or she do the same. This may be the most obvious method of dealing with credit and relationship fears. whether it's your partner or your spouse." says Clint David. "If divorce is on your horizon. "you might want to freeze or close the account first. it's up to you to make sure no one else has access to it. Also. get immediate legal advice about a possible legal separation if allowed in your state. Shut down any authorized user or co-signed cards." warns Randel. how to avoid them Survey shows penalty APRs can double. "Seek legal advice to see how best you can protect yourself. contact the credit bureaus and request a fraud alert. triple normal card rates By Jeremy M. attorneys are strongly recommended. Add a fraud alert to your credit file.can be two to three times higher than regular rates on your credit card. There's not much you can do to shield yourself from a broken heart." Put all agreements in writing: You will pay this amount from that card. In all other courts. 5.the penalty rates charged when borrowers violate the terms of their card agreements -.

they've become much more widespread -. Durham. Navy Federal Credit Union charges a penalty rate of 17. what it showed To calculate the national average.88 percent and the mean default rate is 28.75 percent in 1998." says Thomas Greek.90 percent.com surveyed penalty annual percentage rates (APRs) listed for approximately 90 online credit card offers from a variety of issuers. someone who borrowed $5.000 on a credit card and consistently paid $150 per month at could wind up forking over $9. And while credit card reforms are tightening the rules on how quickly issuers can implement them." On the other side of the spectrum. however.com's Weekly Rate Report showed to be 13. NCUA is currently allowing credit unions to charge no more than 18 percent APR. Not all lenders charge a default rate. How the survey worked. Many cardholders have been dealing with penalty APRs since they first appeared in the late 1990s. which CreditCards.28 percent in the spring of 2009. default rates are still an indignity that should be avoided at all costs. in an e-mail. but I can tell you that HSBC strives to keep its products competitively priced and default APRs are only one aspect of pricing. Subprime issuer First Premier likewise doesn't charge its cardholders penalty rates. the lowest among the cards surveyed. according to data compiled by CreditCards. HSBC charges a penalty rate of 31. even one mistake can be costly. opting for penalty fees instead." says HSBC spokeswoman Kate P. Some issuers that cater to cardholders with bad credit -.16 percent. "It's starting to be almost unbelievable how high some of the credit card companies are going with their rates. Navy Federal's assistant vice president of credit cards. however. Why so much? "Details of programs are proprietary.known in the business as subprime customers -don't charge any penalty APRs.99 percent. and since then has not altered its default pricing. Default rates averaged 22. according to an annual survey by consumer advocacy group Consumer Action. "We believe we fairly set our prices based on economic.com.default rate stands at 27. That's $3. ranging from major banks to subprime lenders. "The Federal Credit Union Act caps credit union APRs at 15 percent. At today's average penalty rate. Since then. and have fluctuated over the years before reaching 25. That doesn't mean cardholders who slip up get a pass. with New Millennium charging $20 each for late payments and exceeding your credit limit. The changing face of penalty rates These rates are nothing new." says Lauren Bowne. In instances where the card offered a default APR range. . New Millennium Bank says its secured credit cardholders may default. The credit union introduced its default rate in May 2009 to account for credit risk. CreditCards. staff attorney with advocacy group Consumers Union. market and other factors in order to achieve an adequate return for our shareholders while providing customers with products and services that meet their credit needs. instead of taking advantage of the customer with inflation or penalty rates when an occasional payment is missed.99 percent.726 to pay off that debt. But not all default rates are created equal. we chose the highest APR in that range.and often more costly for borrowers. our regulator (National Credit Union Administration) is permitted to periodically review this rate every 18 months to determine if it should be higher. "but we would like to give customers the opportunity at a second chance at building their credit. What we found was that for cardholders with a typical default rate. As for why its default rate is comparatively low. the Navy Federal Credit Union points to laws governing lending by credit unions. At the high end." says senior vice president Chip Sisler.468 more than would be required at the current average national APR for new card offers. and those that did not were not included in the average.

. hasn't yet written its final rules regarding this portion of the Act. national priorities director for Consumer Action in Washington.However. under a new law that takes effect in February 2010. "Year after year. meanwhile. but it doesn't require a rate decrease by any specific amount. since it doesn't take effect until August. Just as merchants don't appreciate being paid with a check that later bounces." says Consumer Union's Bowne. As banks struggle to make money in a challenging economy and regulatory environment. banks will find it tougher to raise rates when cardholders make mistakes. That could change. Going over the limit. • • • Late payment. Luckily. can result in penalty APR pricing." Bowne says. Not surprisingly. Paying with insufficient funds. it's a bad time for cardholders to slip up.and lower your credit score. A credit card payment may be considered late if it isn't received by the due date and time. The consumer-friendly Credit CARD Act says that cardholders will need to be a full 60 days late with a payment before they can be penalized by an issuer. "By talking to consumers.the ratio of credit available to credit in use -. Additionally. however. so make sure to be prompt when sending your money either by regular mail or electronically. however. Both mistakes make borrowing more costly. we know what they are. D. the CARD Act requires banks to review any rate increases at least every six months. these default rate triggers are easily identifiable. Exceeding the limit. How to avoid default rates Borrowers need to avoid the errors that activate default pricing. banks penalize cardholders who make that mistake. The Federal Reserve. "The biggest trigger is a late payment. banks frown on payment from an account with insufficient funds.C." says Linda Sherry. right now credit card issuers are looking for every excuse to jack up APRs. Nearing the limit on your credit line can impact your credit utilization -.

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