Credit Card Reform Limits Easy Credit

The days of easy credit are coming to an end. Banks have already been tightening their lending practices as more customers default and wary investors pull financial backing. And the banks argue that new protections for credit card holders may make it hard to get credit at all.  Subprime and secured credit cards, which consumers with fair to poor credit have relied on, are the most likely feel the pinch as credit card companies become more selective in who they issue cards to.

The new rules, which President Obama signed into law last week, are a boon for cardholders. Among other things, they eliminate fees for paying by phone or paying a few days late, and they make it more difficult for banks hike interest rates.  The credit card industry, not surprisingly, says it could potentially cause billions of dollars in revenue losses, part of which the companies will attempt to recover in other ways.

Reduced financial backing by investors wary of the banking industry has already made credit harder to get, leading to credit line cuts. As more people default and others pull back their credit card spending, banks have increased interest rates. The American Bankers Association, which represents the industry and opposed the reform legislation, has threatened to continue raising rates before new rules take effect in February 2010.

Here's what you need to know about getting credit:

Community Banks
Credit from community banks, which are often considered more consumer friendly than big banks, will tighten even further, says Emily Peters, a credit analyst at 

Community banks already tend to be more selective about who they grant credit, since without big-bank underwriting they are less likely to take risks with their money. And in some cases, Peters says, their background checks are more thorough than the automated ones performed by the big banks.

These small banks will be subject to the same regulations as their larger competitors, making it harder to get a consumer friendly credit card.  In fact, credit cards could shift from being an everyday convenience to a privilege—even a luxury—granted only to those with excellent credit, says Peters.

To get a great credit card at any bank these days, you’ll need a credit score of at least 750, Peters notes.  That’s a relatively high figure, considering that the highest possible score is 850 and that a few years ago, anything above 700 would get you a good card.

If you have decent or poor credit, there are other options to consider, but even they could end up being few and far between.

Subprime Credit Cards
Currently, consumers with a credit score of around 620 can get a subprime card with an interest rate of up to 30% from a large national bank, Peters says.  Those with extremely poor credit—say, a score of around 420—can get a subprime card from a smaller card issuer, likely with an even higher interest rate and plenty of fees.

Subprime credit cards, also known as “fee harvester” cards, are notorious for their high fees, disclosed as “annual,” “activation,” “acceptance,” “participation” and “monthly maintenance” fees, according to the Federal Trade Commission.

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