Are You Ready for the New Credit Card Rules?

When President Obama signed into law the Credit Cardholders’ Bill of Rights in May, many consumer advocates rejoiced. When the law takes effect next year, greater transparency by credit card issuers will be the norm.

But the benefits to consumers will come with costs as well. After all, credit card companies made large profits from practices that will be illegal when the new legislation takes effect. Read on to see what you can expect and how you can make sure your credit stays strong.

Lost Revenue for Card Issuers

The new law prohibits a lot of charges that are currently very common among card issuers, including:

  • Universal default: Raising interest rates on multiple accounts when you miss a payment or incur a fee on just one;
  • Interest rate hikes on existing balances: Changing the interest you owe on a balance after you’ve made your purchases.
  • Payments applied to balances with low interest first: After the new law takes effect, payments will be assessed to your balance with the highest interest rate before any other, thus minimizing the total amount you pay over time.

Unsurprisingly, many experts are predicting that the lost revenue from these sources may prompt card issuers to dig into other sources. In fact, a recent survey by credit.com found that some Americans have already seen:

  • Fees increased (14 percent)
  • Interest rates increased (19 percent)
  • Credit limits lowered (14 percent)
  • Minimum payments raised (12 percent)
  • Rewards benefits slashed (9 percent)

How to Prepare Yourself and Protect Your Credit

  • Use your cards regularly and responsibly. Some card issuers may close inactive accounts. If you have a card you don’t use often, be sure to make small charges on it every few months and pay them off in full. This means you’ll keep your available credit high – one element of maintaining a credit score.
  • Keep your total charges down. Here’s a bit of irony: when card issuers see you using too much credit, they may see that as a signal of irresponsible credit usage and cut your limit. However, if you stay around 10 – 20 percent of your available limit, you’ll be viewed as responsible.
  • Pay attention to your interest rates. Because large, national banks may be more leveraged than smaller, regional banks, interest rates on cards from a local bank may be lower than national ones. Take that into account when you decide which card to use for the majority of your purchases.
  • Ask for a heads up. Many banks offer email or text-message reminders when your bills are due. Sign up and never miss a payment (and incur a late fee) again.
  • Cash in your rewards. Be sure to find out if and when your rewards expire – and be sure to use them before they do. Don’t hoard benefits; cash them in regularly to make sure they don’t go to waste.

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