If you haven’t cut up, torched or shredded all of your credit cards by now, there may actually be something to look forward to. Credit card interest rates have spiked to as much as 30% even if you don’t default, and companies have been slashing credit lines for consumers left and right. But sweeping changes are in order as a result of the Credit Card Accountability Responsibility and Disclosure (CARD) Act signed into law this past spring, and many of those new rules will be set in motion by February, if not earlier. After banks make their frantic moves to ensure they make some money before the protections are in place, here are some upcoming changes that might just give you a sigh of relief, especially when you’re starting to feel the effects of holiday shopping on your credit card. Photo Credit: Squeaky Marmot
Old Way: Leading up to the new credit card regulations, credit card companies have raised interest rates on at least half of all card holders, according to one survey, to cover what they perceive as increased risk. But even those with good credit and less risk may have seen their rates rise, according to the American Bankers Association. New Policy: Come February, credit card companies will be required to give cardholders at least 45 days notice before raising interest rates, according to the CARD Act. Even better, they won’t be allowed to raise your rates again unless you miss a payment or otherwise fail to comply with the terms of your credit card agreement. Additionally, new laws mean penalty interest rates won’t be applied to existing debt unless your credit card payment is 60 days late. Photo Credit: TheTruthAbout...
Old Way: If you default on one credit card (or most other types of bills), other issuers can put other credit cards into default status, a not-uncommon practice known as universal default. New Policy: As a result of the new law, this policy will be banned. Plus, good behavior will pay off. If you pay your bills on time for six months, your previous lower rate must be restored. According to the Government Accountability Office, however, even after six months of a card holder’s good behavior, some companies may still charge higher interest rates on existing balances while non-penalty rates would be assessed only for new purchases. Photo Credit: var resa
Old Way: Credit limits have already been slashed for many consumers, even to amounts lower than their current balance, according to Credit.com. A study by credit scoring agency FICO says that card issuers sliced credit limits for an estimated 33 million U.S. card holders between October and April. New Policy: Credit may be harder to come by across the board, but at least policy makers will have to examine the phenomenon of creditors cutting credit limits to below what customers already owe, then charging overlimit fees. While new legislation doesn’t actually address this practice, there will be a new rule requiring that customers be given the opportunity to specifically approve purchases that would put them over their limit before the purchase actually goes through, according to credit analyst Gerri Detweiler of Credit.com. Photo Credit: decade_null
Old Way: To get a good credit card, or a good deal on a loan, credit experts have said the consumers will need a FICO credit score of at least 750. New Policy: Since credit card companies have cut credit limits leading up to new policy rules, credit scores have been lowered significantly. But after the banks and scoring agencies settle in with the new policies, the credit industry as we’ve known it will change. “You’re not getting any leniency just because this is happening to everybody,” Detweiler says, however. “But somewhere something’s got to give, whether lenders will accept more risk or FICO will adjust scores to reflect the credit crunch.” Detweiler says credit card companies will likely be the first to change their credit-granting ways since they can test taking a little more risk starting with smaller market segments. Then mortgage lenders and auto lenders may follow, Detweiler says. And, perhaps as an indicator of changing credit score perceptions, FICO has disclosed how much credit scores can change based on consumers' behavior, which could help you prevent your score from dropping any further. Photo Credit: TheTruthAbout...
Old Way: If you currently pay your balance in full, you’re spared finance charges. But if you go from paying in full to carrying a balance, your previous month’s balance may be used to calculate your finance charges even though you’ve already paid it off. This is a policy known as double-cycle billing. According to the American Bankers Association (which opposes the legislation), many credit card companies have eliminated this practice because it’s a turnoff for consumers, but pending rules would make sure no credit card companies use this practice. New Policy: Using previous, paid-off balances to calculate finance charges will not be allowed. Instead, the average daily balance may be used. Photo Credit: Wesley Fryer
Old Way: Penalty rates and overlimit fees could actually bring troubled credit card holders close to filing for bankruptcy, meaning a creditor’s efforts to make money could actually backfire. “Consumer groups and academics … argued that card issuers were overly aggressive in their assessment of penalty fees,” notes the GAO. “For instance, a representative of a consumer group noted that issuers do not reject cardholders’ purchases during the sale authorization, even if the transaction would put the cardholder over the card’s credit limit, and yet will likely later assess that cardholder an overlimit fee and also may penalize them with a higher interest rate.” New Policy: New rules would prohibit the assessment of overlimit fees unless card holders OK transactions that put them over their credit limit. Photo Credit: JasonRogersFotographie
Old Way: Rewards cards have often offered a percentage in cash back on purchases, bonuses for gas station and grocery charges and special offers in which consumers can get bonus points for certain purchases. New Policy: As a result of changes, rewards may be limited. For example, Chase has reduced rewards promotions for some card holders, and American Express says that customers with Delta Air Lines, JetBlue, Hilton Hotels and Starwood Hotels rewards cards will have to forfeit their rewards miles if they pay their bills late. But at least the promise of points, cash or other benefits won’t help you justify spending beyond your means. Photo Credit: Mararie
Old Way: Currently, credit card disclosure statements, which often get tossed in the trash, are “written at a level too difficult for the average consumer to understand,” according to the GAO. “When attempting to use these disclosures, cardholders were often unable to identify key rates or terms and often failed to understand the information in these documents,” the agency reported. New Policy: Credit card agreements will be readily available online, so you can refer to them if you need them instead of wishing you didn’t throw them away and having to call your creditor to go over your terms. Photo Credit: AndYaDontStop
Old Way: Credit card companies have targeted recent high school graduates by sending attractive company reps to offer cards along with free goodies like T-shirts and mugs. And while some college-aged kids might accept these credit limits of thousands of dollars, the hold-outs could be punished by being offered a card with a credit limit of only a few hundred dollars post-college. New Policy: Credit card applicants younger than 21 will have to show proof that they can pay off their debt, or a parent or guardian will have to co-sign on a card and be responsible for debt in the event that the applicant defaults. Photo Credit: Andres Rueda
Old Way: Previously, some store gift cards may not have really been worth their face value. Card issuers may charge hefty penalty fees for inactivity, or even allow the card to expire, making it worthless after a certain amount of time. New Policy: Gift cards branded with a credit card logo will have to remain valid for at least five years, according to the new credit card policies. If there are any dormancy fees, the policy must be printed on the card itself. Photo Credit: campbelj45ca