When it comes to credit cards, what you see isn’t necessarily what you get. That’s because interest rates, fees and other cardholder terms can change unexpectedly.

At a glance
Name: Emily Peters
Hometown: San Luis Obispo, Calif.
Education: University of the Pacific (B.A.)
Career highlights:
  • Worked for several years as an industry insider at credit report bureau TransUnion.
  • Joined Credit.com in 2005 as a personal finance expert.
  • Seven years of experience in the credit industry focusing on credit reports, credit cards, loans and personal finance.
  • Serves as the CreditBloggers.com editor and has spoken at numerous personal finance conferences.
  • Commentator on FOX News, CNBC, KRON-4 and Fox Business News..
  • Quoted as a national credit expert in USA Today, American Banker, Kiplinger’s Personal Finance, Newsweek and the Los Angeles Times.

Change can be a positive force under the right conditions. But as the credit card industry tries to shield itself from risk in a shaky economy, new tactics for bolstering balance sheets may end up hurting good customers along with the bad ones, according to Emily Peters, a personal finance expert at San Francisco-based Credit.com, a consumer advocate and educator.

As a former employee of credit reporting giant TransUnion, Peters learned the ins and outs of the credit industry before moving on to become a personal finance expert.

She says part of the problem with the industry today is that current regulations give credit card issuers wide latitude to change terms and allow companies to author consumer disclosures in arcane language, making them hard to understand.

Bankrate talked to Peters about the latest industry trends and how increased regulation of the credit card industry could protect consumers from some of the more egregious credit practices.

Who are the credit card issuers targeting with respect to interest rate increases and credit line decreases? How should consumers respond to these changes?

So far, what we’ve seen regarding increased rates and lower credit limits is that they’re usually targeted at people who had very low interest rates on fixed-rate cards. However, the main identifier really has been people who carry balances on their credit cards even though they always made their payments on time. Traditionally, that has been the right way to use credit cards. That’s the way that most people use credit cards and that’s the way that’s been very lucrative for credit card companies, but apparently not lucrative enough because we are seeing reduced credit limits and increased rates on people who carry balances and even account closures sometimes for people who fit into that model. Another target is dormant accounts — credit cards that haven’t been used in 12 or 24 months.

Do you think jacking up interest rates and charging fees to cardholders who carry balances is unfair? After all, it seems like card issuers themselves contributed to the credit crisis by fostering loose lending practices and allowing consumers to rack up massive debt.

You know the old saying, life isn’t fair? Well that’s definitely true when it comes to credit card companies, especially right now. With credit cards, nothing is permanent; nothing is written in stone, so terms can change and it’s definitely a risk that you take. Consumers just don’t have a lot of power in those situations and in the way that the contracts are written with credit card companies. There’s not a lot that you can do or rights that you have in that sort of situation. So is it fair? It doesn’t seem fair to consumers, that’s for sure.

Why are credit card companies cutting back on their marketing programs?

The credit card companies right now are not really in a position to accept new customers, so they’ve turned off a lot of their marketing programs. This isn’t for every credit card company, but we’ve seen some pretty big credit card companies out there doing this and it’s surprising. Many companies have completely stopped their mail programs, so you’re not getting those preapproved offers in the mail. Direct mail for credit card companies is usually standard, so it’s kind of shocking to see them put a hold on that.

Has the credit crisis really affected all consumers on Main Street, or is credit still widely available to those with very good credit scores?

It definitely is spreading out to Main Street and impacting people who are Alt-A or subprime (credit tiers). But for people who have very good credit, there are still options out there. We’ve seen people who are self-employed unable to get mortgages now that there are restrictions on “no-doc” loans. But if you have great credit, if you have a good down payment, and you’re in a healthy financial position, it’s not a total desert. In terms of what we’ve seen over the last couple of years — easy access to credit — that’s pretty much over.

Bankrate’s survey shows that only 6 percent of Americans have experienced a reduction in their credit line recently. A separate survey conducted by a consumer advocacy organization over the summer reported that about 20 percent of Americans have been similarly affected. Which number is more accurate from your perspective?

I think it’s probably more toward the 20 percent and the difference between the two numbers probably has to do with people not being aware that their credit limits have been reduced. You get these disclosures in the mail and they’re in seven-point font and extremely hard to read. I’ve been doing this for seven years and I find them hard to understand. I think most people maybe aren’t aware of the changes that are happening. The people that I’ve heard from, the same 6 percent that you’ve heard from as well, are people whose credit limit decrease has directly impacted their credit score or their ability to use their credit and they’re mad. So they found out about it because it’s actually directly hurting them.

If a credit card issuer lowers your borrowing limit or unexpectedly raises your interest rate, should you close your accounts or can you take some other action that won’t adversely affect your credit scores?

That’s a common question where a lot of consumers feel wronged by their credit card companies. They want to exercise their consumer rights and close the account. Unfortunately, that type of negative action is just shooting yourself in the foot. You always have the right to close the account, but the way that the credit scoring system is built, it’s always going to have some sort of negative impact on your credit score. The older the account or the larger the credit limit on that account, the larger the damage will be to your score. What I tell people is if you really want to close the account, just make sure it’s not the oldest one or the largest account that you have and just make sure that you’re not going to be applying for a home or an auto loan in the next couple of months.

Why will closing an account with a larger credit limit affect you more negatively than one with a lower limit?

Because it could negatively impact two parts of your credit score: one, the credit age if it’s an older account, and then the utilization ratio, which makes up 30 percent of your score. It’s actually a huge factor that a lot of consumers don’t really understand.

Is there really such a thing as a credit card with a fixed interest rate or is that a misnomer because card issuers can change the terms of your account at any time for any reason. Correct?

It’s sort of a half-truth, because there’s really no such thing as a fixed rate card when it comes to credit cards. What we’ve seen with a lot of customers who’ve been complaining recently about having their interest rate increased on this type of account is that they did have a fixed rate for two to 10 years. The risk you take with credit cards is that terms can change and they often do.

Some credit card issuers are tracking where consumers shop and whether they use their credit cards to pay for things like groceries in an attempt to assess risk. Do you think this practice will become more commonplace as a way of doing business and if so, isn’t it a bit Orwellian?

You know it’s pretty shocking to hear about this coming from credit card companies. Although consumers are used to having rather limited privacy when it comes to our financial information via the credit reporting system and other systems like that, I think this is something that kind of goes a little bit beyond that. It makes sense from the credit card’s perspective because they happen to be in a really defensive posture right now. They’re trying to protect themselves against rising defaults and we’re seeing this even in the prime credit cards like with American Express and Discover. I would be surprised if this is something that doesn’t get regulated pretty quickly within the next couple of years. It seems like something that consumer advocates would really jump all over because any time that you have data being used in that way, there should be some sort of regulation attached to it. I think it’s not widely known yet. With any consumer issue in the credit markets, it always takes a while for regulators to respond to the issue.

Do you think the credit card industry should be more tightly regulated across the board to protect consumers or is it fine the way it is?

I’m all for some more regulation with regard to the financial product. I think we’ve really learned this lesson the hard way the last couple of years. People aren’t reading the fine print. You know now we have this Schumer’s box on credit cards which has been a vast improvement where you can see the rates and fees. But is it enough? Are people really reading that? Do they really understand how these things work? Not necessarily. I think that the sort of buyer-beware-type programs that we’ve had in terms of regulation have been good but they haven’t been enough. I hope that in the next couple of years we are going to see a reversal of some of the deregulations in terms of credit card rates and fees and then hopefully a push to get some of these policies that are really harmful to consumers out of the marketplace.

Do you think the incoming Obama administration will take credit card industry reform seriously?

Yes. I know that part of Obama’s platform had some consumer protections in there regarding credit card reform and bankruptcy reform — a couple of things that all of us in the consumer credit industry have been keeping our fingers crossed about. It should bode well. The credit card industry, like the entire financial industry right now, is changing so much that it remains to be seen what’s going to be leftover in six months.

Some credit card issuers will advertise premium credit cards with a great balance transfer offer but reserve the right to offer you another less attractive card depending on your credit score. Can it hurt your credit score if you choose to decline the alternate card because you find the terms to be less than favorable?

There are a couple of different factors that can hurt your score. One is just the inquiry itself, although that’s not really too damaging because it’s only 10 percent of your score. If the card does get reported to the credit bureaus, which can happen even if you never activate, and it’s subsequently closed, that can damage your score, but luckily in most cases if you just call and cancel the card right away, it doesn’t get reported. I would say it’s best to cancel within 30 days or just right away because each company has their own policies for how they report it.

Bankrate’s survey also indicates that 15 percent of Americans don’t plan on using credit cards at all next year; 32 percent will probably charge less and 50 percent won’t change their credit card usage. Only 1 percent said they would probably charge more. Any thoughts about these results?

I think that’s optimistic and I like the trend that’s presented there that consumers are feeling a little bit more wary of credit — which I think is good for us considering where we stand with the economy — and that they’re feeling that they intend to use cash and build up savings and be more financially responsible. Unfortunately, what we see on the actual result end of these things is people are using their credit card a lot when people face job loss or other kinds of financial hardship. They see the credit card as a good safety net. With all the tough times coming up in the year ahead, I think that we’re actually going to see more credit card usage.

Do you think Americans are making inroads toward curbing household debt by relying less on credit, and if so, is the trend here to stay?

I think it depends on what happens on a societal level during this current downturn. If you talk to people who went through the Great Depression, they learned financial lessons that really stuck with them for their entire life. They didn’t go out and buy houses with two mortgages on them, a vacation home, a jet ski and all these things. Thankfully we’re not there yet (in an economic depression), so I’d love to see this continue with people becoming more financially savvy. But it remains to be seen, because if interest rates get very low, there’s a lot of motivation for people to get out there and start borrowing again.

Do you think a credit card with a low initial limit is a good thing for students and others just starting to establish credit?

Yes, but I think it’s a little bit harder to establish your credit when you have a low limit like that because then your debt-to-utilization ratio rears its ugly head pretty severely. As for debt utilization, it is a common misconception that the magic number is 30 percent. You start losing credit score points anytime you go over 10 percent. It’s a sliding scale above 10 percent with 30 percent better than 50 percent, etc. And trying to stay under that 10 percent marker can be very difficult. It’s $50 a month if you have a card that only has a $500 limit. That’s hard. It’s not how people think of using credit cards. They think if they have a $500 limit, then they can spend up to $500 on it. Still, I think it’s a good solution (lower initial card limit for students and others). Offering credit is a good thing for the system in general, and it’s also a good way for people who are new to credit to get established. As you use that account responsibly, you can ask for increases in that limit.