Despite the new credit-card rules, many factors can still cause a credit-card issuer to raise your interest rate. One is when a lender reviews your credit history and decides to change the terms of your credit card when, for example, it's informed that you missed a payment with another credit issuer.
The Credit Card Accountability Responsibility and Disclosure (CARD) Act, however, does offer consumers some protection here: Should your credit-card issuer change the terms on your credit card, they can do so for purchases going forward not the balance that you're carrying in most cases.
The credit-card industry claims that what it's doing is managing risk. "Prior to these reforms, most of the larger issuers would review risk profiles on average every 90 days," says Peter Garuccio, a spokesman for the American Bankers Association (ABA), a trade group. He says many of them have their own internal risk modeling systems and they rely on credit reports from the bureaus. Going forward, he says, he anticipates issuers will review profiles just as often. "It's a matter of sound underwriting."
2. "We'll give you advance notice but your options are limited."
With the CARD Act, credit-card issuers need to give you at least 45 days' advance notice of an upcoming significant change to your account.
"The key is the flexibility with which they can apply any change to a customer's profile," says Garuccio, explaining that the customer has the right now to reject new terms a credit-card issuer plans to impose. As a result, the issuer could either allow the customer to continue using the card with existing terms until its expiration date or they may close the account. Either way, the customer is responsible for paying off any balance, if there is one, under the pre-existing terms.
The options given to consumers here, however, represent a Catch-22. Shutting down a credit card lowers your credit score. The alternative would mean having a card with a higher interest rate.
3. "When it comes to identity theft, you're at risk."
Credit cards are a common gateway for identity theft, and it's almost impossible for a consumer to be 100% certain that their identifying information won't ever be compromised, says Murray Jennex, an associate professor of information security and information systems at San Diego State University. But there are some basic steps you can take to minimize the chances.
Before you input credit-card information on a web site, make sure it's secure; look for a URL beginning with "https" and for an image of a lock by the web address. Refrain from storing personal information online and try to update your computer's antivirus software each year (you'll typically incur an annual fee for that).
Also, don't respond to emails requesting your personal information and don't click on links included in them. "Your bank won't contact you in an email asking for this," says Margot Mohsberg, an ABA spokeswoman. And if there's a link in the email, "just by clicking on it, fraudsters can download malware that would allow them to coast with you when you go into your bank account." If you're unsure whether or not the source is your lender, call them.
Consumers who fear their credit-card information has been compromised should immediately notify their credit-card issuer and if possible file a police report. In most cases, credit-card issuers will work with you; while you will likely be liable for the first $50 of unauthorized charges, the issuer typically covers the rest of the losses. Mohsberg says that credit-card issuers are increasingly waving the $50 payment. They've "found it's not worth it to charge customers that amount of money; it's much better for the company to completely reimburse that fee and to ensure consumer trust."
4. "We haven't forgotten about your kids."
A good portion of the new credit card rules are geared towards protecting college students particularly those under the age of 21. But don't think they'll keep credit-card issuers at a safe distance.
For example, credit-card issuers can't give out free stuff to students in exchange for filling out a credit-card application on college campuses or at college-sponsored events. But they can still give out freebies as long as they don't require students to sign up for a credit card. Spokespeople for Citigroup (C)
Credit-card companies are also appealing to parents (who may need to co-sign for the cards, and thereby become responsible for unpaid balances) to reach college students. Discover (DFS)
In the credit-card marketplace, rewards are a way for banks to target niche audiences frequent-fliers, for instance. Before signing on, figure out how much you'll have to spend to earn the incentives from a given card and if the card is geared toward your spending habits. And check to see if rewards on specific purchases are offered throughout the year; some credit cards rotate the categories they offer rewards for every few months, says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling. With all rewards cards that offer cash back, find out if there's a capped amount on what you can earn. And for those with travel rewards, inquire about blackout dates when you can't use your rewards to fly.
Consumers who are approved for these credit cards should avoid carrying balances since the interest rate can eat into the savings. "What people tend to do with rewards cards is charge everything," she says. "But if you're a person who carries a balance month to month don't consider [such a card] because you'll be paying interest on it and probably not gaining the rewards you should."
6. "Deferred-interest plans can leave you worse off than where you started."
Stores often promote deferred-interest credit card plans with the sale of big-ticket items like furniture, electronics or watches. But often these plans are too good to be true.
Typically, these plans financed by a lender allow a consumer to purchase an item without paying interest during a promotional period, such as six or 12 months. But if the promotional period ends and a consumer hasn't paid off the entire balance in full, interest will kick in and you'll get retroactively charged interest on the entire balance for the entire promotional period, says Chi Chi Wu, a staff attorney at the National Consumer Law Center.
Also, if a consumer is more than 60 days late with a required payment during the promotional period, the zero interest could be replaced with retroactive interest charges. "Even if consumers understand the pitfalls, such a tactic relies on consumer optimism or failure to think of the worst," like losing their job or getting sick and being unable to make these payments, says Wu.
7. "Double-cycle billing isn't entirely a trend of the past."
A big change that accompanies the new credit card rules is the elimination of double-cycle billing. This is a formula that computes interest charges based on the previous two billing cycles penalizing consumers who go from paying off their balances every month to carrying balances.
However, if your card doesn't have a grace period the timeframe when an issuer allows cardholders to avoid paying interest on charges if you pay off the credit-card balance in full you still could be exposed. "The provisions against double-cycle billing apply when a credit card has a grace period, so if a credit card doesn't have [one], the rules don't apply," says Wu. For cards without grace periods, some credit-card companies are refunding the interest if the consumer pays his balance off in full each month.
By now, plastic has all but replaced the traveler's check as the preferred method for making purchases abroad. But beware of charges that accompany these transactions.
At issue is the foreign transaction fee, which is charged for converting currency back into U.S. dollars. Currently, Visa and MasterCard charge 1% of purchases as a foreign transaction fee, and most banks that issue these cards add another fee on top of that. For example, Bank of America charges 2% and when combined with the Visa or MasterCard fee, credit card users often end up with a total fee of 3%. Foreign-transaction fees are often this high, says Gerri Detweiler, a personal finance advisor at Credit.com and co-author of "Reduce Debt, Reduce Stress."
Also, consumers who go online to purchase items from a vendor abroad typically get charged with a foreign transaction fees.
9. Late fees are still with us.
With the CARD Act, consumers should be aware of the new changes to the time their payments are due. Prior to the new rules, many banks were setting a deadline as early as 9 a.m. on the payment due date or as late as 2 p.m. Now, payments are on time when received by 5 p.m. on the due date. And if the due date is on a weekend or federal holiday (when payments aren't processed), the credit-card issuer must consider your payment on time if they receive it on the next business day.
"This change gives you a better shot at getting your payments in on time," says Detweiler. For consumers who are late with their payments, credit-card issuers can still charge you a late fee, which they aren't as quick to refund anymore, she says. As of now, late fees are as high as $39 and they're not proportional to the amount owed. So a consumer whose late paying a $20 bill can incur a late fee that's around $39, she says. The Federal Reserve announced proposals this month that include changing the late fee, but even if something passes it won't be before August.
10. "Go ahead and exceed your credit limit we like that."
With the new credit-card rules, consumers consent to "opt in" to charge an over-the-limit fee. If they don't opt in, they could be denied if they try to exceed their card's limit.
The problem with opting in is that you'll pay a fee. Right now, you can be charged a fee of around $30 to $35 each month you're over the limit (or more if you exceed the limit with another transaction in a subsequent month), says Wu. The Fed has proposed rules to limit the amount of that fee.
Wu says consumers have reported that credit-card issuers are trying to convince people to opt in, by offering the incentive of a lower fee, and implying that by opting in they'll have extra protection in case they need to use their credit card. "It's a way for credit-card companies to make more money off fees, and we recommend not opting in because it will more likely hurt you," she says.
Garuccio of the ABA says he hasn't heard of credit-card issuers doing this.
Additional reporting by Nancy Nall Deminger>