credit cards

Credit card damage control

Minimal protection is on the way. "Under the Federal Reserve Board's new rules that go into effect July 2010, the issuer is going to be required to give the consumer 45 days' notice before lowering their credit limit to the point where they could get socked with a fee or penalty rate," says Chi Chi Wu, a staff attorney for the National Consumer Law Center in Boston. The issuer doesn't have to warn the customer about a lowered limit otherwise.

For now, she says, no federal law restricts the practice. National banks can ignore state laws containing language to the contrary. With the credit card market dominated by a handful of national banks, the burden is on the consumer to check statements or set alerts for balances nearing the credit limit.

Besides the penalties for going overlimit and having less available credit, getting close to the limit can depress your credit score. Your debt-to-available-credit ratio will increase on your cards, a factor that counts for a whopping 30 percent of your FICO score, the risk-scoring model used by most lenders. A steep drop in score can then cause a domino effect, with other issuers making adverse changes to your accounts.

To offset the lost limit, either rein in spending and pay down the balance or consider getting a new card if your score hasn't fallen too far.

"If you dropped much below the 720 range, I would focus on bringing my score back up before I apply for new credit," says Curtis Arnold, founder of CardRatings.com and author of "How You Can Profit From Credit Cards." Otherwise, you could end up dinging your score with an inquiry and no new account to show for it.

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2. You can no longer buy all three FICO scores

You need a solid credit score to get approved for a new account these days. About 45 percent of banks indicated having raised minimum credit scores for credit card accounts, and more than half reported granting fewer applications that didn't meet the threshold, according to latest senior loan officer survey.

Unfortunately, you can only check two out of three FICO scores. Experian killed its relationship with myFICO.com earlier this year, and consumers lost the ability to purchase their Experian FICO scores. You can still purchase your other FICO scores through myFICO.com, or directly through TransUnion and Equifax, the other major credit reporting agencies. Experian still sells its PLUS score and the VantageScore, a score developed by the bureaus, but most lenders rely on FICO scores.

Try our free FICO score estimator to see where you stand. You can also pull your credit report for free through http://www.annualcreditreport.com/. Federal law entitles you to a free copy of your credit report from Equifax, Experian and TransUnion once every 12 months.

3. Requesting a lower rate may backfire

It used to be good advice to call your issuer every six months or so to ask for a lower interest rate. This tactic earned lower APRs for many people. A November 2006 survey from Synergistics Research Corp. found that about 78 percent of people who had requested a lower rate received one as a result. Around 11 percent were denied a reduction, and then closed their accounts.

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Product Rate Change Last week
Balance Transfer Cards 15.73% --0.00 15.73%
Cash Back Cards 16.43% --0.00 16.43%
Low Interest Cards 10.98% --0.00 10.98%
 
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