Tips for the new credit card marketplace

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We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Thursday, February 18th, 2010

The CARD Act goes into effect on February 22nd and consumers are getting a wide range of protections. But you should still watch out for tricky practices. Here are some tips to help you navigate the new credit card marketplace.

What isn’t covered by the new law?

Watch Out For the Go-To-Rate

If you get a balance transfer, your interest rate can quickly jump to a high rate once your promotional rate expires. The new higher rate will apply to your entire balance and any new purchases you make.

Doesn’t Un-Do the Rate Spike:

Many consumers have seen their interest rates double or triple in the past year even when they’ve always paid their bill on time. The new credit card rules won’t reverse these recent interest rate hikes but the Federal Reserve will soon be issuing a proposal to implement a provision in the Act designed to require companies to review rate increases and reverse them under circumstances. We’ll be telling you more about this very soon.

Your Minimum Payment Can Still Go Up Sharply

Your minimum payment can go up if your interest rate goes up. Under the new rules, credit card issuers can raise it to the level required to pay off your balance in five years. But credit card issuers are free to raise your minimum payment to any level if they do so without raising your interest rate.

No Limits to the Size of Rate Increases

The new rules don’t cap the size of penalty interest rates. The Fed will be issuing new regulations later this year to make the size of penalty interest rates more fair, but right now there are no limits on how much a credit card issuer can hike your rate.

Tips for consumers.

Review your statement carefully to avoid getting in over your head: It’s always important to review your statement, but that is especially true if you carry a balance. The new rules require card companies to tell you on your bill how much you would have to pay each month in order to pay off your entire balance in three years. If you can’t afford this amount, then you should stop using your card until you pay down your balance.

Look beyond the big print when it comes to promotional interest rates:
Find out what your future rate will be after the promotion expires. That’s how much you’ll end up having to pay on the balance you build up when your promotional rate ends and for all future purchases.

Stay away from balance transfers: You could end up paying a fee as high as 4 percent of the amount you transfer and it could have a negative impact on your credit report since you’re opening a new line of credit. Once the promotional rate on the balance transfer expires, you could be stuck with a higher interest rate than what you have now that will apply to your remaining balance and all future purchases.

Don’t co-sign for anyone: If they don’t pay their bill, then you owe the money and your credit could be ruined. The new rules prohibit credit card companies from issuing cards to people under 21 unless they can demonstrate the ability to pay their bills or if they get someone to co-sign for them. Think twice about co-signing unless you are prepared to pay all of the debt.

If you continue to experience credit card practices that you think are unfair, tell us about it!

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