Monday, July 27, 2009

New Credit Card Legislation...Victories and Warnings

New Credit Card Legislation...Victories and Warnings

by Hassan Nicholas

I don't know if you've been following Washington, but one of Obama's projects has been to eliminate unfair and abusive practices between credit card companies and their customers.

In sum, here is what went down and how we should all move forward from this:

No More Arbitrary: Credit card companies used to be able to raise your interest rate (seemingly arbitrarily...but not really) on an existing balance. With the new legislation not only can't credit cards raise your rate on existing balances, but one company can't hold it against you if you miss a deadline with another card. +1

Pay the highest rate card first: This mantra was a popular strategy to alleviate credit card debt for holders of multiple cards. Obama's plan means that payments from now on will automatically be applied to the "portion of your balance with the highest rate", first. +1

Keep Swiping: Although you don't want to overextend yourself, it's generally not a good idea to keep your cards inactive. And please think twice about canceling cards. It's generally not a good idea. It's projected that lenders will reduce the amount of credit they lend - meaning, not only will many unused cards get cut, but some of those that are open will have their limits tightened as well. Anything from location, debt-to-income ratio, and spending patterns can influence a creditor's decision of whether you'll get the axe or not. All this means is you'll have to play a delicate balance between swiping just enough to not have your credit reduced, but not so much that your credit score is affected. They used to say 30% was the magical number for credit utilization ratios. Now some experts are saying to be conservative at 10%. As a consumer, you'll have to even more careful with your credit. Have a budget?

Oh yea, and if you are a victim of a rate cut, you'd probably be better off opening a new card rather then chatting it out with the bank. -1

Keep Watch: Now more then ever credit card companies could initiate potentially costly changes to the terms or rate of your card. In the past creditors were required to contact you at least 15 days before a change. With the new legislation you will notified 45 days prior. However, be careful. There is no standard on how the bank or credit card company will reach you. -1

Now that something has finally been done to protect consumers against abusive credit relationships, expect a jealous and bitter reaction from creditors.

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