Financial Literacy - Credit savvy
credit cards
Rules of the credit card game

q_v2.gifWhat is the optimum number of credit cards for an individual or a couple?

a_v2.gifI usually recommend two. That's really because, when you think about it, you have one card that you use exclusively for your purchases, and you have the second card just for emergencies. It's always good to have a backup, particularly these days, given that you don't know when and by how much your credit card issuer is going to slash your credit line.

q_v2.gifMany think that some practices in the credit card industry, specifically "universal default," are unfair to consumers. Are we going to see any pro-consumer legislation come into effect that will address such onerous practices?

a_v2.gifI'm realistic enough to concede that all of the limitations we need and all of the prohibitions we need are not going to happen. But I am more hopeful that we are going to see some needed changes, some needed limitations, on credit card issuers and some of their worst practices.

For starters, the Federal Reserve has just finalized a rule that will ban card issuers from raising interest rates on your existing credit card balance, unless you pay 30 days late. This one change will have a tremendous affect on consumers. Unfortunately, we'll have to wait till 2010 for it to take effect. We also hope that the "Credit Card Bill of Rights," sponsored by Congresswoman Carolyn Maloney of New York, will become law. Consumers spoke out, and it passed the House this autumn. Now a new Congress must revisit it. It would improve upon and codify the steps that the Fed has just taken. Issuers would still be able to price for risk, but they could not apply new punitive rates on an old balance.

Think about it: A credit card contract is the only contract that you will ever enter into that is so one-sided that only one party in that contract can change the deal whenever they feel like it. You don't have to do anything wrong to have things happen. You could be paying on time, you could never go over your limit, you could always pay more than your minimums. It's the only arrangement where what would've been considered an ideal customer just a few short months ago, well, that person can suddenly be deemed a risky customer. And to be deemed a risk, all you have to do is something different than you did last year.

And if one lender deems you a risk, that change in status could affect your standing with all of your other lenders. It's unfair and maddening, but that's how things are. And, for now, it's perfectly legal.

q_v2.gifWhat else about credit cards is important for Bankrate's readers to know?

a_v2.gifI think it's really important for people to know that we all have to keep an eye on our credit card bills and statements every month -- as unexciting as it is, as tedious as it is.

There are just so many changes going on with credit these days. While you might think that you have this great credit line, the reality could be that you really don't, because creditors are not required to let you know in advance that your credit limit has been changed. Consequently, it could be very easy to go over your credit limit today and then find yourself on the receiving end of a $39 over-the-limit fee. And once you get hit with that fee, your interest rate can be doubled and that bad news quickly could end up reaching your other lenders, who will then also deem you as "risky." So be aware of your purchase rates, your credit limit and any changes in fees.

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Product Rate Change Last week
Balance Transfer Cards 15.75%  0.02 15.77%
Cash Back Cards 16.45%  0.03 16.48%
Low Interest Cards 10.96% --0.00 10.96%
 
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