How to Handle Your Credit Cards

Now that most of the Credit Card Act of 2009 has been implemented, it may be a good time for a review its important provisions. The Banks must give the consumer 45 days notice for most changes related to the account. Typical changes would be a change in the interest rate, credit limit, and changing fees, terms, etc. If they are making changes to the terms of the contract, they must give you the right to opt out of it, cancel the card, and allow up to five years to pay off the balance. If the interest rate on your account is changing, it is applied only to new purchases in the account. If you have different balances within an account for purchases, cash advances, transfers, etc., then the bank must use a given payment to pay off the high interest categories of the account first. They should then work their way down to the next lowest interest category and then the next, and so on. In this way your total balance is paid off more quickly than if the payment was otherwise applied, and the total interest charges will be lower. The bank must inform how long it would take you to pay off your balance if you make only the minimum payment. It must also tell what payment you will need to make to pay off your balance in 3 years. Of course, if you make the minimum payments it likely take quite a bit longer than three years to pay off your balance. And your total interest charges will be higher. So this illustration will highlight the benefit of making larger than minimum payments to the consumer. There are now more limited ways in which an individual can go over their credit limit and what fees can be charged for doing so. First, the bank cannot allow a cardholder to go overt their limit unless the cardholder asks and/or approves going over the limit. If they do go over the limit in this way the bank can only charge an over the limit fee once per month - not each time a transaction is made once the balance is over the limit. The over limit penalty fee cannot be more than the amount the cardholder went over the limit, among other limitations. Overall penalty fees are more restricted than in the past. In most cases, under the new rules a late payment penalty fee can only be up to $25 unless you have been late on a payment within the last six months. If so, the fee can be up to $35. In addition, your credit card company cannot charge a late payment fee that is greater than your minimum payment. So, if your minimum payment is $20, your late payment fee can't be more than $20. Similarly, if you exceed your credit limit by $5, you can't be charged an over-the-limit fee of more than $5. There also must be a notification that a late fee will be imposed and the amount it will be if payment is not made by a certain date. There can be no change to the interest rate for a new card within the first twelve months of issuance. There are a few exceptions: If it is a variable interest rate card, in which case the rate can vary according to the indices with which the rate is tied. Or if it is a card with an initial low or zero rate, then the rate can be adjusted after six months to the standard rate disclosed at time of sign-up. Or if you are more than 60 days late with a payment or delinquent with other terms. So called double cycle billing, which is a way the banks charged on high balances in two different periods, even if the balance was reached in only one period, is no longer allowed. There are also restrictions on upfront charges on sub-prime cards and marketing cards to those under 21. Keep in mind most of these rule changes do not apply to credit cards issued to businesses. Overall, these changes should help the consumer manage their credit more wisely and inexpensively. However, keep in mind that banks may increase costs in other ways, such as increased annual fees, to try to make up the revenue. They have also claimed they may have to restrict credit because they cannot fully charge for the risk that they are taking.