Friday, Dec. 18
Posted: 2 p.m.
Bankrate reporter Leslie McFadden contributed this entry.
Happy holidays, everyone!
If you're like me, you're still shopping for gifts, and putting at least some of those purchases on credit cards.
For me that means general purpose cards I already have, not the store cards pitched at the checkout counter. Store cards are usually offered with an initial discount, but typically aren't the best cards to use if you carry a balance. They often have high interest rates near 20 percent and low credit limits.
If you're tempted by the savings, at least read the fine print before signing up, and find out if the card has other perks, such as ongoing discounts or free shipping on online purchases.
Those who carry a balance should also watch out for adjustments to their existing accounts.
The portion of the new Credit CARD Act that protects existing balances from rate hikes doesn't go into effect until Feb. 22. In other words, the APR on that Wii could get bumped up with just 45 days notice. So, open mail from your card issuers and scan it for changes to your accounts.
If your rate does climb to an unreasonable level and a balance transfer proves unfeasible, the law gives you the option to cancel the card and keep your current rate. Closing the account doesn't constitute a default or require instant repayment of the balance owed.
Canceling the card may punish your credit score once the debt has been repaid. The proportion of balances-to-credit limits on your revolving accounts comprises a key measure of your debt usage. The loss of the available credit on the closed account could push that ratio up and cause the score to drop. Reducing other balances should revive your score.
In addition, credit card issuers can cut credit limits without providing 45 days' advance notice. Before you head to the stores -- and when you get your statement -- make sure to verify the credit limit. Going over the limit will damage your score and possibly trigger a fee and penalty rate. The CARD Act will make over-limit fees optional in February.
When the bills come in, devise a plan to pay off the debt quickly. Use our pay-down calculator to see how long it will take to wipe out the balances.
Addition from Ellen Cannon:
Yesterday the Associated Press ran a story by Candice Choi about First Premier Bank charging some customers 79.9 percent interest on their credit cards. She explained that the new law will cap fees on cards but not interest rates, so First Premier is exploiting that loophole.
First Premier Bank Credit Card listed on Bankrate currently offers an initial APR of 9.9 percent and a credit limit of "at least $250" and whopping fees that will be billed on the first statement: annual fee of $48, set-up fee of $29, program fee of $95, monthly servicing fee of $7. Total: $256 for the year! For a $250 credit limit!
Consumers with poor credit should opt for a secured card instead, where they fund their own credit line with a security deposit. There are still some fees -- First Premier's secured cards have an annual fee of $69 (and assorted other fees) and the APR is 19.9 percent -- but they won't eat up the entire credit limit.
Hope all of you have a very happy holiday! Here's to a prosperous New Year!
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