WASHINGTON (Reuters) - The long-awaited, widely anticipated credit card law goes into effect on February 22, but it has already had unintended consequences -- many of them negative -- for consumers.
Cardholders have already seen some of these effects: Issuers pushed interest rates to new highs, started adding new fees, slashed credit limits, and cut back on new credit offers. Young borrowers -- those under the age of 21 -- may not have noticed any changes in the build-up to the new rules, but now may find they cannot get a credit card at all.
The restrictions were designed to protect young and old consumers from a raft of abusive practices by issuers -- and they will. But who will be surprised if and when the banks and other issuers come up with another batch of Gotcha! practices?
Here"s how to manage your credit cards now, to make the most of the new protections without falling into any new traps.
-- Consider your whole package of plastic. View your credit cards and other loans, such as a home equity line of credit (HELOC), as a portfolio of debt, just as you would consider all of your retirement accounts to be an investment portfolio. Make decisions based on the portfolio in its entirety. That may mean diversifying -- setting aside one card for some uses and another for different uses. Or shifting balances from a high-interest rate card to a low-interest HELOC. Or "selling" (canceling) cards with bad provisions and "buying" (applying for) new cards that have better rewards and protections.
-- Watch for new fees. "The Credit Card Act could cost you big bucks," says Curtis Arnold of Cardratings.com (www.cardratings.com). "By shifting profit centers away from interest rates and penalty fees, many banks have resorted to raising costs for all of their customers." That means some issuers are adding new annual fees and inactivity fees. Just say no. There are thousands of card options out there, most without annual fees, so refuse to pay them.
Should a card that is already in your portfolio add an annual fee, call and threaten to cancel the card unless the fee is dropped. You can cancel the card if you"ve already got others to use in your portfolio, your credit score is solid and you"re not expecting to borrow big money -- say for a house or car -- in the next three to six months. If you have a poor credit score and are having a difficult time obtaining credit, you may have to eat the fee for a year while you reposition yourself for better deals.
Avoid inactivity fees by using every card you want to keep once every month. You can put a regular bill, such as a utility bill, on a card you"re not using.
-- If you"re young, expect complications. Folks under 21 won"t be able to get a credit card at all unless they have a job earning enough to justify the credit -- or have their parents co-sign. Furthermore, credit card companies won"t be allowed to market to students on college campuses anymore -- so forget about the free T-shirts and water bottles that were freebies of the past. That became an abusive practice, but the absence of card offers isn"t very helpful. A credit card can be a real learning opportunity and a convenience to students who must travel home on holidays and often purchase books and other items online. So apply for a card while you"re working a summer job -- or get your parents to co-sign. Parents: If you"re co-signing, make sure the credit limit stays low, like at $500 or so. And get copies of the bills so you can monitor how your child is using credit and paying their bills.
-- Never be late. The new law makes it harder for card issuers to trap you into being late. It requires issuers to take last-minute payments online or on the phone, and to give you more notice before a bill"s due date. But it allows them to bump up late fees -- some have already risen to $50, says Arnold. To avoid ever paying a late fee, put a minimum payment on auto-pilot, either by having your credit card issuer automatically draw it from your bank account or, preferably, by setting up a regular payment, large enough to cover the minimum, from your checking account.
-- Watch for new offers. At the end of 2009, issuers increased their marketing efforts for the first time since 2007, according to market research firm Synovate. There"s some evidence that they"re taking a barbell approach: targeting the best offers to the top consumers -- those with high credit scores who have heavy credit card usage. And targeting fee-laden, high-rate offers to those consumers who would be considered sub-prime. Folks in the latter category might have already had their credit curtailed, and these might be the first offers they"ve seen in a couple of years. So read all new offers carefully. Apply for a new card if you like the deal and it fits into your portfolio.
-- Talk to the White House. Austan Goolsbee, President Obama"s economic adviser, will host a town hall meeting at 2 p.m. on February 22 at CreditCards.com (www.creditcards.com) to answer questions about the new credit card law. It might be a chance to get your two cents in, before the card issuers confiscate that, too.
(editing by Gunna Dickson)
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