New Credit Card Law Maintains Consumer Rights
Out with the old, in with the new? Not this time. While the Credit Card Accountability, Responsibility and Disclosure Act of 2009
(aka the Credit CARD Act) may increase consumer protection in some ways, it won't change conventional wisdom about maintaining a strong credit history.
The new law began taking effect in August 2009, when it required issuers to send monthly bills 21 days before they're due and to provide 45 days' advance notice before changing annual percentage rates.
As of February 22, 2010, the law also requires notice before card issuers can increase interest rates, fees or finance charges. The Credit CARD Act also changes the information displayed on monthly bills and prevents people under 21 from obtaining cards without a co-signer or proof of ability to pay off incurred debts. Additional provisions this summer will ensure that penalty fees and increases established since January 2009 are reasonable and proportional.
The law allows consumers to avoid late fees if the issuer's office is closed on payment day, or if bills are received on the day they're due. Still, cardholders should be ready to make payments on the credit charges they incur, according to Mechel Glass, director of education for Consumer Credit Counseling Service of Greater Atlanta.
"Use credit cards only to make purchases that you are prepared to pay off when the bill comes in," Glass said. "Pay bills in advance of the due date, and work toward creating an emergency savings account that will reduce dependence on credit in the event of unplanned events."
Under the new law, creditors will be able to reduce credit limits without notice and close accounts that appear to be inactive. Purchases may be declined if they exceed the cardholder's credit limit, unless the cardholder chooses to pay a fee. Glass recommends that consumers prevent cards from being closed by using them periodically for small purchases, like gas, and paying them off in full.
Some money-saving practices developed during the recession may also have negative effects on a credit score, according to a report by Seattle-based news station KOMO News. Having too few accounts — while it limits spending and late payments — can reduce available credit and hurt a consumer's score.
"In some cases, you can also lose points by consolidating multiple accounts into a single account," the report said. "It's also possible to get your credit score reduced if you charge everything to your credit card and always pay the balance in full."
Consumers can monitor their credit history by requesting free reports from each of the three credit bureaus. Staggering the reports by four months can give consumers an accurate, though limited, snapshot of their credit history throughout the year. This also allows cardholders to spot and dispute mistakes in their credit reports.
While payment history has the largest effect on a consumer's FICO score, amounts owed, length of credit and types of loans are also considered.. Carrying a high-debt balance can have a negative impact, even if it's routinely paid off in full.
