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

In addition to the moves to make before the law takes effect, good credit card habits remain important, some of them even more so. Don't go overboard. Making too many changes within a short period -- as in opening or closing several accounts at once -- can hurt your credit score. If you're closing or adding new accounts and about to apply for a loan, it may be better to keep the cards you currently have -- even if the terms are worse. 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. Pay your bills on time. 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, payments not received by the due date will show up as bad marks on your credit report. Pay more than the minimum amount due. It will help you pay your credit card debt off faster. The new law mandates that your billing statement include a prominent notice of how long it will take you to pay off your debt. For many, that could be a wake-up call. If you're having trouble paying your bills, get help from an accredited nonprofit credit counselor. Your monthly credit card statement will feature a toll-free number to call for help. 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.S. bankruptcy courts for credit and debt management counseling. Stay on top of your mail. The new law requires that credit card issuers notify you of changes to your account. That means you can't leave that mail unopened on the table for a week. Some changes are likely to have deadlines and time elements that can hurt you financially if you don't act quickly. Bowne, from the consumer group, recommends consumers create a list of their credit card accounts that includes key terms (i.e., the interest rates for purchases, balance transfers and cash advances, fees, due dates and grace period). 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. "It requires a lot of organization and a lot of time," Bowne says. "The more credit cards you have, the more things you've got to juggle and the more things you've got to know." She adds: "At least now, luckily, your credit card due date will be on the same day each month."

7 ways to protect against being a victim of credit card revenge

While you can't shield against a broken heart, you can safeguard your credit
By Erica Sandberg

The end of a relationship can be the start of serious financial problems. Sharing finances may have felt right when you were a happy duo, but it can make for a complicated -- and costly -- breakup. Without taking the proper precautions, your past partner may ring up debt that you'll be responsible for and may even try to borrow money in your name. (See "Credit card revenge spending.") Here's how to make sure your credit is safe from a revenge-seeking ex.

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Protect personal credit cards. According to Jim Randel, author of "The Skinny on Credit Cards," it is illegal for anyone to use your individually held credit accounts without your permission --

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whether it's your partner or your spouse. However, if the credit account was granted to you and you alone, it's up to you to make sure no one else has access to it. Always be in possession of the card, and if your ex can knows your online ID and passwords, change them immediately and make them un-guessable. Look into a legal separation. If you are married, an extra safety step may be in order. "If divorce is on your horizon, get immediate legal advice about a possible legal separation if allowed in your state," says Clint David, an attorney in Dallas. "Depending upon your state's laws, any debt that the other person charges to the account after that date might be theirs alone." Close co-signed and authorized user accounts. Shut down any authorized user or co-signed cards, says Randel. It is more important to protect yourself against wrongful debt than any ding you may get on your credit report for closing an account. In the event that there's a balance on a cosigned card, you will probably have to pay the debt off first. Tip: Transfer what you owe to another account that's in your name only and then close the original. Monitor your credit report. You are entitled to one free credit report per year from each of the credit bureaus, but you may get more at no cost if you suspect fraud. However, even if you have to pay for them, make a point of checking the reports if you feel the other person could compromise your credit. And contrary to popular belief, pulling your own credit report doesn't impact your credit score. Look for any debt you didn't incur, as well as loans and lines of credit you didn't pursue. After all, you can only dispute them if you know they exist. Add a fraud alert to your credit file. If you are really worried your ex will open new cards in your name and leave you with the bill, contact the credit bureaus and request a fraud alert. 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. Speak with a lawyer. Sometimes it makes sense to pay for help and guidance. "Seek legal advice to see how best you can protect yourself," says David. Also, if the other person does use credit cards when they weren't supposed to, you may decide to take them to court. While you can take the matter to small claims court (where you represent yourself), the amount the other person charges may exceed the award limit for which you can sue. In all other courts, attorneys are strongly recommended. Talk with the other person. This may be the most obvious method of dealing with credit and relationship fears, but it's often overlooked. Discuss what you want to do with joined accounts and how you will each pay for combined debt. Still, "if the dissolution is hostile," warns Randel, "you might want to freeze or close the account first." Put all agreements in writing: You will pay this amount from that card, the other will pay that on the other. Turn over any cards that may be the other person's and ask that he or she do the same. Tying up loose ends now can result in far less money spent on legal fees later.

Don't ignore what can happen to your finances and credit during and after a love split. There's not much you can do to shield yourself from a broken heart, but there is a lot you can do to safeguard your credit.

Credit card penalty rates can top 30 percent; how to avoid them
Survey shows penalty APRs can double, triple normal card rates
By Jeremy M. 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. Default interest rates -- the penalty rates charged when borrowers violate the terms of their card agreements -- can be two to three times higher than regular rates on your credit card. The current national average

default rate stands at 27.88 percent and the mean default rate is 28.99 percent, according to data compiled by CreditCards.com. And while credit card reforms are tightening the rules on how quickly issuers can implement them, default rates are still an indignity that should be avoided at all costs. "It's starting to be almost unbelievable how high some of the credit card companies are going with their rates," says Lauren Bowne, staff attorney with advocacy group Consumers Union. How the survey worked, what it showed To calculate the national average, CreditCards.com surveyed penalty annual percentage rates (APRs) listed for approximately 90 online credit card offers from a variety of issuers, ranging from major banks to subprime lenders. Not all lenders charge a default rate, and those that did not were not included in the average. In instances where the card offered a default APR range, we chose the highest APR in that range. What we found was that for cardholders with a typical default rate, even one mistake can be costly. At today's average penalty rate, someone who borrowed $5,000 on a credit card and consistently paid $150 per month at could wind up forking over $9,726 to pay off that debt. That's $3,468 more than would be required at the current average national APR for new card offers, which CreditCards.com's Weekly Rate Report showed to be 13.16 percent. But not all default rates are created equal. At the high end, HSBC charges a penalty rate of 31.99 percent. Why so much? "Details of programs are proprietary, but I can tell you that HSBC strives to keep its products competitively priced and default APRs are only one aspect of pricing," says HSBC spokeswoman Kate P. Durham. "We believe we fairly set our prices based on economic, 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." On the other side of the spectrum, Navy Federal Credit Union charges a penalty rate of 17.90 percent, the lowest among the cards surveyed. The credit union introduced its default rate in May 2009 to account for credit risk, and since then has not altered its default pricing. As for why its default rate is comparatively low, the Navy Federal Credit Union points to laws governing lending by credit unions. "The Federal Credit Union Act caps credit union APRs at 15 percent; however, our regulator (National Credit Union Administration) is permitted to periodically review this rate every 18 months to determine if it should be higher. NCUA is currently allowing credit unions to charge no more than 18 percent APR," says Thomas Greek, Navy Federal's assistant vice president of credit cards, in an e-mail. Some issuers that cater to cardholders with bad credit -- known in the business as subprime customers -don't charge any penalty APRs. New Millennium Bank says its secured credit cardholders may default, "but we would like to give customers the opportunity at a second chance at building their credit, instead of taking advantage of the customer with inflation or penalty rates when an occasional payment is missed," says senior vice president Chip Sisler. That doesn't mean cardholders who slip up get a pass, however, with New Millennium charging $20 each for late payments and exceeding your credit limit. Subprime issuer First Premier likewise doesn't charge its cardholders penalty rates, opting for penalty fees instead. The changing face of penalty rates These rates are nothing new. Many cardholders have been dealing with penalty APRs since they first appeared in the late 1990s. Since then, they've become much more widespread -- and often more costly for borrowers. Default rates averaged 22.75 percent in 1998, according to an annual survey by consumer advocacy group Consumer Action, and have fluctuated over the years before reaching 25.28 percent in the spring of 2009.

However, under a new law that takes effect in February 2010, banks will find it tougher to raise rates when cardholders make mistakes. 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. Additionally, the CARD Act requires banks to review any rate increases at least every six months, but it doesn't require a rate decrease by any specific amount. That could change, however. The Federal Reserve, however, hasn't yet written its final rules regarding this portion of the Act, since it doesn't take effect until August. How to avoid default rates Borrowers need to avoid the errors that activate default pricing. Luckily, these default rate triggers are easily identifiable. "Year after year, we know what they are," says Linda Sherry, national priorities director for Consumer Action in Washington, D.C.

Late payment. "The biggest trigger is a late payment," Bowne says. A credit card payment may be considered late if it isn't received by the due date and time, so make sure to be prompt when sending your money either by regular mail or electronically. Going over the limit. Nearing the limit on your credit line can impact your credit utilization -- the ratio of credit available to credit in use -- and lower your credit score. Exceeding the limit, meanwhile, can result in penalty APR pricing. Both mistakes make borrowing more costly. Paying with insufficient funds. Just as merchants don't appreciate being paid with a check that later bounces, banks frown on payment from an account with insufficient funds. Not surprisingly, banks penalize cardholders who make that mistake.

As banks struggle to make money in a challenging economy and regulatory environment, it's a bad time for cardholders to slip up. "By talking to consumers, right now credit card issuers are looking for every excuse to jack up APRs," says Consumer Union's Bowne.