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Credit card notices are worth reading

By Pamila Yip – Dallas Morning News

Credit card companies are starting to send out notices to their customers on how new credit card rules will affect them.

I’m collecting the ones I’ve received, and they’re worth reading, even if it’s the last thing on your mind.

It’s important to read them because they represent the meat of the federal Credit Card Accountability, Responsibility and Disclosure Act of 2009 that will take effect Feb. 22.

The sweeping law includes restrictions on over-the-limit fees, the marketing of credit cards to adults under 21 and dramatic changes in how issuers can impose interest rate increases.

When you get the notice from your card issuer, there are parts worth noting:

• Annual percentage rate – Your APR on existing balances can be raised only if you don’t make your minimum monthly payment within 60 days of the payment due date.

Card issuers can still raise your APR for future transactions even if you’re not 60 days late, but they must give you at least 45 days prior notice of any rate increase.

“Currently, card issuers have raised it if you pose any additional credit risk to them,” said Bill Hardekopf, chief executive of LowCards.com, a credit card information Web site. “That’s almost an open-ended [interpretation].”

• Minimum payments – When the law takes effect, card issuers will have to apply any amounts you pay over the minimum payment to pay down balances with the highest APRs instead of the lowest APRs, as many do now.

“A great number of issuers apply anything you pay over the minimum payment to the part of the balance that has the lowest interest rate so they keep the highest interest rate going,” Hardekopf said.

You can be in situations where you have different APRs on your balance.

“You might have a balance here for the last year, and then you charged something last Christmas at 14 percent,” Hardekopf said. “If your rate were taken up to 18 percent in the summer, your balance has parts that are made up of two different interest rates.”

Here’s an example used by Bank of America in its notice to cardholders:

Say you have a credit card with two balances. The first balance has a promotional APR of 4.99 percent and the second balance has an APR of 14.99 percent.

Under the law, if your minimum payment is $100 and you pay $125, the extra $25 will be applied to the higher rate balance.

So pay as much over the minimum payment as you can.

• Over-the-credit-limit fees – Issuers are saying they’re eliminating over-the-limit fees, but that’s not coming from the warmth of their hearts.

The credit law requires credit card companies to obtain a cardholder’s permission to process transactions that would push your account over your credit limit.

Don’t give your OK for this. Be disciplined and keep your credit score up by staying within your credit limit – way under your credit limit.

The card issuer can still decline to approve transactions that exceed your credit limit, so it’s more important than ever to know how close you are to your limit.

• Default pricing – Issuers are eliminating “default pricing,” meaning that your rate on existing balances will no longer be raised for being a few days late with your payment.

But you will still be charged a late-payment fee.

The credit card law bans rate increases on existing balances because of “any time, any reason” and severely restricts retroactive rate increases because of late payments.

All these changes are good for consumers, but you should aim to pay off your credit cards as quickly as possible.

“What loans do you have that are at 15 percent interest?” Hardekopf said. “The loan that you need to pay off as soon as you can that’s penalizing you financially is your credit card bill. It’s an incredibly high loan.

RMCN Credit Services
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