New credit card rules
Here are some of the terms of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which was signed Feb. 22. Some of these changes went into effect in August and most will become effective in February.
Retroactive interest rate increases are banned except when a cardholder is more than 60 days late paying a credit card bill.
The credit card issuer must review the cardholder’s account six months after increasing the interest rate, and return the APR to the previous lower level if the cardholder has been on time with payment.
Interest rate cannot be increased within the first 12 months, and promotional rates must have a minimum of 6 months in duration.
Advance notice of 45 days must be given prior to significant changes in credit card terms; this includes the benefits and reward structure of a credit card.
The practices of universal default and double-cycle billing are no longer allowed.
Fees for going over one’s credit limit are now prohibited, unless consumers specifically agree to allow the transaction to go through instead of being denied.
Bills must be sent out no later than 21 days before the due date.
Payments a cardholder makes must be credited as on time if the payment is received by 5 p.m. on the due date.
— Source: Ken Binzer, Consumer Credit Counseling Service of Graceworks Lutheran Services
There can be a great deal of confusion regarding the benefits and pitfalls of using credit cards.
Each consumer has different needs, credit card companies have a variety of stipulations, and the rules governing credit cards are in the process of changing.
In September, we asked readers to let us know their most pressing credit card questions so that we could find the answers, help them and others better understand their rights.
Two kind credit experts stepped up to help us out: Ken Binzer, the education and marketing coordinator with Consumer Credit Counseling Service of Graceworks Lutheran Services in Dayton, and Sean McCartney, president/CEO of U.S. Credit Experts.
Here are their answers to your credit card questions:
What offenses cause the most damage to your credit rating?
Binzer said credit ratings are most damaged by anything listed in public records, such as bankruptcy, foreclosure, tax liens, etc.; or any default or charged-off accounts in collections. He said that missing payments hurts your rating, but not to that extent.
Are credit cards the primary influence on your credit rating?
Both Binzer and McCartney said paying bills, such as mortgages and car loans, should come first. Credit cards are a close second.
Will canceling credit cards hurt your rating?
Generally, Binzer said, it is better to keep accounts open. Keeping older accounts alive provides a larger credit “capacity” to any debt you may be carrying, and allows you to have a longer credit history.
Also, since creditors are now closing unused accounts (those that have no activity for eight months or more), it is good to have an automatic payment made against the account or make a small but needed purchase every six months or so and then pay it off.
If you don’t carry any debt and pay your balance every month, does it hurt your credit rating?
It doesn’t hurt your rating, they said, but it is advised that you keep the accounts active. “If the accounts are dormant, then you will end up with no score,” McCartney said.
What about unactivated credit cards? Do they hurt, help your rating?
“They do not hurt and do increase your credit capacity,” said Binzer, adding that activating these cards and paying them off might be an opportunity to build credit. “This could help in the future for a major purchase, such as a home.”
If you are married and don’t have a credit card in your name alone, can that hurt your rating?
McCartney said spouses on joint cards get as much credit for the card as they would if they had one in their name only.
How is your rating affected if you have never owned a credit card?
“Not having a credit card will have no impact on your overall credit rating,” McCartney said.
If you don’t have credit, what is the best and fastest way to gain credit?
McCartney said to apply for a traditional credit card or get a loan through your local credit union. Binzer leaned toward getting a secured credit card.
“Sometimes a secured credit card can be obtained by using your own money in a ‘frozen’ savings account to back a credit card issued by a bank or credit union,” Binzer said. “After a year or so, the financial institution will turn it into a regularly issued credit card.”
Is there an “ideal” amount of cards to carry?
The experts agreed that it depends on the individual but, in general, having two major credit cards with a generous credit limit will work for most people.
“You can use one for month-to-month purchases and pay off the balance each month, and use the other for emergencies, trips, etc.,” Binzer said. “Also, with credit card companies cutting limits and canceling cards with little notice, the backup card is essential.”
Can credit card companies increase or decrease the minimum balance or decrease the limit on cards without notice?
“Under the old rules, credit card companies could pretty much change rates and terms at any time, for any reason; usually with a 15-day notice,” Binzer said. “Under the new law, an advance notice of 45 days is required prior to any significant changes made to credit card terms.”
He added that companies cannot lower the limit below the balance you owe.
If someone gets sick or loses a job, is there a program that will help them delay payments?
“Some credit card companies offer insurance with your card,” McCartney said. “The best solution if this happens is to contact the credit card company immediately and explain your situation. Always document your calls.”
Can companies go after family members when collecting on debts?
“Only if they are parties to a joint account,” Binzer said. “Or if the creditor has reason to believe that assets are being protected or hidden by transferring to other parties.”
Are credit consolidation programs good for most people in debt?
McCartney advised consumers to be cautious. He said most of the time the programs set up an escrow account to which you pay fixed payments.
“Keep in mind, though, while you’re paying into your escrow account, payments are not being made to the creditors,” he said. “Along the way, your credit report will show you not making the payments, and the credit card companies still can come after you for nonpayment.”
What are the laws concerning collectors calling clients?
Binzer said the Fair Debt Collection Practices Act covers the guidelines for third-party collectors.
When should you declare bankruptcy?
McCartney said you should only declare bankruptcy as a last option, and consult with a bankruptcy attorney.
What is the best way to maintain good credit?
“Paying every bill on time, every time is the best way to build and maintain good credit,” Binzer said.
For more information on credit card laws and use, contact Binzer at (937) 534-7920 or kbinzer@graceworks.org, or McCartney at (937) 469-2310 or sean@uscreditexperts.com.
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