Cashing In Q&A columns

How to cope until new credit card rules take effect


Even though regulators have approved tough new credit card rules, consumers still must watch out for tricks and traps of the credit card game. Here’s a checklist of what to do.

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Federal regulators have approved the most stringent credit card regulations in nearly three decades, but that doesn’t mean change will come overnight. Credit card issuers have until July 1, 2010, to implement the requirements.

What should consumers do in the meantime? Watch those monthly statements, pay off as much credit card debt as possible and reduce spending to avoid relying on credit to meet basic living needs, credit counselors advise.

Financial wake-up call

Gail Cunningham, spokeswoman for the National Foundation for Consumer Credit, says consumers are getting “a well-deserved wake-up call to make us reclaim control of our finances and our financial destiny.”

Until the new federal rules kick in (see What the new credit card rules mean to you and Interactive look at what new monthly credit card statements would disclose), she recommends consumers carefully read all mail and correspondence from creditors.

“All those mail stuffers, start reading those,” she says. Cardholders “need to really keep a close eye on that for any change in terms, such as the annual percentage rate and the credit limit. If they see any change in the terms, they need to contact their creditor immediately and find out why.”

Ask to speak to a supervisor and ask about opting out of the interest rate increase, she says.

When making credit card payments, pay early, don’t miss any payments and pay at least the minimum (preferably more), Cunningham says, adding bills may be delayed in the U.S. mail and cardholders may not have as much time as they think to get a payment in before the deadline.

“You better open that bill and pay it that day,” Cunningham says. “We’re seeing many 20-day grace periods. Why risk having a ding on your credit score?”

Another good rule: Don’t max out your credit cards. Try to keep balances at 30 percent of the credit limit or lower. Not doing so, “puts you into the risk category in the creditors’ eyes. What they really like to see is a credit utilization ratio of no more than 30 percent,” Cunningham says. “If you exceed 30 percent, devote any extra money you have to paying that down to get it into the range of 30 percent or less.”

Cash advances

Joshua Frank, a senior researcher at the Center for Responsible Lending, warns consumers about two common credit card industry practices: payment allocation and penalty re-pricing. In two studies issued Dec. 16, he found that consumers may pay hundreds of dollars in additional interest each year when they get cash advances on their credit cards or when their interest rates are increased because of penalties.

“What you have to do is look at your statement. Look at your rates. Don’t assume it’s the same as it was the last month. Rates can change. If they do, take action to move your balances elsewhere,” Frank recommends.

To avoid paying more on cash advances, the reports recommend:

  • Using a separate credit card for cash advances and not making any additional purchases on the cards until they are paid off. This avoids the payment allocation problem, where issuers allocate payments toward items on the monthly statement with the lowest interest rates first. The practice means consumers will take a longer time to pay off higher-interest rate balances and pay more in interest. The new federal rules address this problem by requiring payments in excess of the minimum amount due go toward high-interest balances or be allocated in a proportional manner.
  • If you use separate credit cards for cash advances, purchases or balance transfers, pay anything above the minimum to the cards with the highest interest rates.

Adds Cunningham: “If you’re trying to become debt free, the No. 1 thing is stop charging. If you’ve dug yourself into a deep financial hole, stop digging.”

See related: Regulators issue sweeping new credit card rules, What the new credit card rules mean to you, Interactive look at what new monthly credit card statements would disclose, House passes Credit Cardholders’ Bill of Rights, Fed backs rules to curb deceptive credit card practices, Fed moves to close timing loophole in credit card payments

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