5 Ways the New Credit Card Laws Affect You
By Jordan E. Goodman,
Co-author of Master Your Debt: Slash Your Monthly Payments and Become Debt-Free
Now that the Credit Card law has fully gone into effect, it's time for you to reevaluate your strategies about how you use your credit cards. The credit card issuing banks have changed many of their policies, and it's time for you to react and make the most of the opportunities that have been created and avoid the biggest pitfalls. Here are a few areas for you to consider:
• Interest rate hikes: Many banks hiked the interest rates on outstanding balances to well over 20% and in some cases as high as 29.9%, even for customers who have always paid on time. If your bank has done this to you, search for an issuer offering a much lower rate at a website such as www.creditcardperks.com and surf your balance to a card charging 8% or less. Don't close your existing account with the high rate, though, because you will lose the good payment history you have built up which will damage your credit score.
• Fee increases: Banks are now raising fees on credit card account holders or imposing new fees they never charged before. A few examples: Late fees, over-limit fees, inactivity fees if you don't use your account, or low balance fees if you don't charge enough on your card. Many banks have raised the balance transfer fee from 3% to 5% of the amount you transfer with no limits, compared to limits of about $100 per transaction in the past. Banks have to disclose these fees and give you the chance to opt out of them or close your account if you don't want to pay them. Switch your spending to cards that either don't impose these fees or charge modest fees.
• Credit cards for college students: The new rules stipulate that anyone under age 21 cannot get a credit card in their own name unless they show proof of independent sources of income or have their parents co-sign on the card. If you are a parent, it is a good idea to co-sign and monitor your child's spending carefully so they can start to build a credit record. Have the child pay the credit card bills so they learn to manage money responsibly by the time they graduate.
• Changes in rewards cards: Many banks are going to make their rewards programs less rewarding by requiring you to spend more money before you earn free trips, lowering cash rebates or charging higher fees to participate in these programs. Reevaluate which rewards you really use and concentrate your spending on the cards that give you the best perks, whether that be frequent flier miles, hotel rewards, retailer rebates or cash back. You can survey all the rewards programs at www.creditcardperks.com.
• Effects on your credit score: Monitor your credit carefully with a website such as www.guardmycredit.com to see how various bank actions affect your credit score. For example, if a bank cuts your credit line dramatically and you owe an outstanding balance, that can lower your score by raising your debt-credit limit ratio. For example, If you have a $10,000 credit line and owe $4000 on it, your ratio is 40%, but if the bank lowers your credit line to $5,000, your ratio shoots up to 80%, harming your score significantly.
The Credit card game has changed dramatically -- follow these steps and come out a winner!
© 2010 Jordan E. Goodman, co-author of Master Your Debt: Slash Your Monthly Payments and Become Debt-Free
Jordan E. Goodman co-author of Master Your Debt: Slash Your Monthly Payments and Become Debt-Free, is a nationally recognized expert on personal finance. He is the author of the bestselling Everyone's Money Book and twelve other books. For eighteen years, he was the Wall Street correspondent for Money magazine and also served as a regular commentator for NBC News at Sunrise and Mutual Broadcasting System's America in the Morning. Today, Goodman appears regularly on many radio shows, including public radio's Marketplace as well as on TV programs on Fox, CNN, CBS, CNBC, and MSNBC. He also speaks regularly to large groups such as the Harv Eker wealth seminars.
Visit Goodman's Web sites: www.moneyanswers.com and www.master-yourdebt.com.
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