The new credit card law that takes effect in 2010 will bring about changes for issuers and cardholders. Issuers will be bound by restrictions on rate hikes and fees and increased disclosure requirements. Borrowers will need to know the key provisions in the law and the loopholes.
While the new rules will clamp down on retroactive rate hikes, they don't prevent all negative changes to card accounts. Even consumers with high credit scores may not be able to avoid unwanted adjustments. If a creditor wants to cut your credit limit, it might do so because your credit score dropped, because your card usage is low or because of a change in your payment behavior. Card issuers can close accounts on good customers or institute a new fee.
The best a consumer can do to maintain a good score and keep account terms intact is to get in a defensive posture. Pay on time, keep balances low and don't close accounts unless it's necessary to avoid an expensive change in terms.
Consider these 10 tips for managing your credit cards in 2010.
Pay down holiday purchases.Reducing your outstanding balance protects against negative changes to your account, saves money and improves your credit score. Until the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, takes effect Feb. 22, you're vulnerable to interest rate hikes that could apply to an existing balance. A lower balance also could help cushion your credit score against credit limit reductions. An important ratio in credit scoring formulas is the amount of credit you've used versus your limit. If your limits are cut and your debt doesn't decrease, your score could drop.
Open credit card mail immediately.The CARD Act requires credit card issuers to give you the right to opt out of a "significant" change in terms. In such cases, issuers must send out notices at least 45 days in advance of the effective date. That gives you a limited time to decide whether to reject the proposed change. Opting out cancels the account.
Check your credit report and score.Your credit score is based on your credit report. If derogatory errors, such as delinquencies or collection accounts, are on your report, your score will be lower than it should be. That's why you should check your credit reports at the three major credit reporting agencies on a regular basis. It costs you nothing. Federal law entitles consumers to a free copy of their credit reports from each of the three credit bureaus once every 12 months. Head to AnnualCreditReport.com and simply rotate the agency every four months to get a new credit report.
Unless you're in the market for a loan, you may not feel a need to pay for an exact credit score. Still, it's good to know. The knowledge can come in handy if you want to gauge whether your score is high enough for a new credit card that requires "good" credit.
Most credit card issuers use FICO scores, and most credit score estimators deliver educational scores (or score ranges) not actually used by lenders. Bankrate.com offers a free FICO score estimator. Tip: Use your statement balances when asked about your credit card debt, even if you pay in full every month. Scoring models don't see that you've paid in full because that information doesn't appear on your credit report.
Improve your credit score.In some cases, issuers will lower credit limits because the customer's credit score has dipped below a certain level. Having a high credit score should qualify you for most credit cards. To boost your credit rating, pay bills on time and reduce credit card balances. Avoid ordering multiple credit cards at once, because too many inquiries on your credit report can lower your score.
Use inactive accounts.Rarely using a credit card may prompt the card issuer to close the account. Dormant accounts deliver zero profit to the institution. In addition, some issuers charge inactivity fees for unused cards. Fifth Third Bank charges a $19 fee if the account hasn't been used in a year, and Citi is tacking on annual fees of $30 to $90 on some accounts that don't meet an annual spending threshold.