Sunday, August 1, 2010

New Directions for Credit Cardholders- Tips

1. If your credit card company has lowered your credit limit, it may cause your credit score to decline. This is because your score is based in part on the percentage of your credit limit that you are using and how much you owe.

2. Under the new law, card issuers now must generally tell customers about certain changes in account terms — in areas such as interest rate and fee increases — 45 days in advance, up from 15 days in the past. In that same notice, they must inform consumers of their right to cancel the card before certain account changes take effect. These notices may come with your credit card bill or through a separate communication.

3. “no-interest” offers-you must pay off the entire purchase by the time the promotional period ends to take advantage of the zero-rate offer. If you don’t, the lender will charge you interest from the date you bought the item. You would then have to pay interest — at the lender’s standard rate — from the date of purchase.

4. Rewards_ For more information about using rewards programs wisely, see our article “Points, Cash Back and Other ‘Rewards’ from Your Bank: How to Cash In on the Right Deal,” in the Summer 2009 issue of FDIC Consumer News at

5. Parents of young adults have a new opportunity to teach responsible management of credit cards. The new law includes protections for young consumers, including a requirement that anyone under 21 who wants to obtain a credit card must have a qualified co-signer on the account or must prove he or she alone can repay any debt. This is intended to protect young people from getting overwhelmed by credit card debt. But it also offers an opportunity for parents to teach their kids about responsible use of credit cards.

6. Take additional precautions against interest rate increases. “Although the law puts new limits on interest rate increases, you need to remain vigilant,” Manley added. For example, while card companies cannot increase the interest rate on existing balances except in certain circumstances, they may raise rates on extensions of credit for new purchases as long as proper notice is provided.

“If you receive a notice that your interest rate is increasing,” Manley said, “determine whether you have another way to make future purchases, such as by waiting until you have saved enough money for the purchase or by using a card with a lower interest rate.”

Rate increases also may come in another form. For example, some fixed-rate cards may be converted to variable-rate cards after a notice has been sent to cardholders. This would result in variable rates being applied to new balances.

Also note that a credit card company can increase the rate on an existing balance if the consumer fails to send the minimum payment within 60 days of the due date. So, it’s very important to avoid being more than 60 days late on a credit card. If you miss a due date, you can avoid a “penalty” interest rate on that existing balance by getting your payment in within 60 days. And if you’re more than 60 days late and that does trigger a rate increase, get current on your credit card payments as soon as possible and then start consistently paying on time. Card issuers are required to reduce the penalty rate if they receive prompt payments for six months.

In general, what else can you do to get the best rates? Keep in mind that a credit score is built up over long periods, not just over one or two years, so make all your loan payments on time. Even if you have past blemishes, you can improve your credit score over time by managing your credit well. Be aware that if you can only afford to pay the minimum amount due, you probably won’t get the best rates. But if you can pay more than the minimum each month — as much more as possible — that will work in your favor.

Also, carefully read the terms of a new credit card before using it. If the card has a high interest rate or fees, shop around for a better offer.

According to the American Bankruptcy Institute, more than 1.6 million Americans could file for bankruptcy by the end of 2010.