The end of February saw the implementation of new credit card rules as part of the Credit CARD Act. This legislation instills new consumer protections by improving communication between credit card providers and their customers. In many cases, it does just that. But there are also some unintended consequences that could have a negative impact on some credit card holders.
Here are some basic changes and what they mean, as well as the potential fallout and how you can avoid it:
Credit Card Correspondence
- Credit card providers now have to provide customers with 45 days notice of any changes in terms. This is designed to give consumers time to examine their options in the face of new fees or possible interest rate increases.
- Similarly, credit card bills must be sent at least 21 days prior to the due date to provide ample time for payment.
Changes in Interest Terms
- Card issuers can't raise interest rates in the first year of a new account.
- Promotional rates must be clearly labeled and must last at least six months.
- Credit card providers can't raise rates retroactively on existing balances unless the minimum payment isn't received with 60 days of the due date.
Credit Limits
- Card companies must offer consumers the option of having a fixed credit limit that can't be exceeded.
- Consumers can opt-in for a flexible credit limit that may result in an over-limit fee if they charge beyond their credit limit.
- The number of over-limit fees per transaction is capped at three.
Underage Solicitation
- Credit providers can no longer solicit cards to anyone under the age of 21.
- Card issuers can't provide credit to anyone under the age of 21 without parental or guardian consent, or unless the customer can show independent financial means to cover the credit account.
Enhanced Disclosures
- Each bill will include the total number of months it will take to pay off your bill at your current rate and making minimum monthly payments.
- And you'll see how much you'll need to pay each month in order to pay off the balance in 36 months.
All in all, these changes are a good thing. However, as credit card companies begin to lose revenue from some of these new practices, they'll certainly look to recoup it or reduce their exposure by adding new fees, reducing credit limits, or even closing accounts all together.
Fortunately, by evaluating these changes and enacting a careful system of responsible credit card management, consumers can minimize the chances of higher fees, reduced limits or closed accounts.
Here then are five sensible credit card management tips:
Monitor Your Mail
The best way to avoid these fees, reductions in credit, or elimination of accounts is to carefully monitor communications with a credit card provider and understand the implications of their changes as well as your actions. This means taking the time to read mailings and speak with representatives when appropriate. The days of throwing letters from your credit card company in the trash are over.
Maintain Prompt Payment Status
Demonstrating that you can responsibly meet your current credit obligations is the number one behavior that will impact your standing with the credit card company and your credit score. By missing or being late on a payment you may incur fees, potentially increase your interest rate, and lower your overall credit score.
Pay Down High Balances
This will show that you can responsibly manage your credit limit, minimizing the chance of higher tiers of interest rates or reductions in credit limit. Additionally, better credit utilization will help boost your credit score.
Maintain Active Lines of Credit
By using the revolving credit lines that you need or want to keep and promptly paying on them, you can help avoid cancellation of those credit card accounts. Additionally, some credit card companies are introducing inactivity fees. This behavior will avoid those fees and help boost your credit score, while having a long existing credit line closed could lower your score.
Avoid Fees Through Responsible Spending
Credit card providers will likely look to recoup revenue by charging fees for extra services. New regulations prohibit over limit provisions unless consumers opt-in to the service. Card providers could then charge consumers for this right. By remaining aware of credit limits and balances, consumers can avoid a need for these fees altogether.
The main point to remember in all the discussion of the new credit card rules is that smart card management and responsible spending habits will remove the most severe repercussions. However, it is more important than ever to maintain a close watch on all accounts.
For military personnel, it also makes sense to consider military-friendly sources of credit cards such as military supported credit unions. While the credit card changes are the same across the board, not all cards are created equal.
For more information on managing your debt and credit, visit Military.com's Credit and Debt center.
