Worse Terms First Fall-out from Credit Card Reform

By Eva Maria Norlyk

Most pundits saw it coming: a wave of frenzy as credit issuers scramble to get their ducks lined up before the new provisions called for in the CARD Act of 2009 kick in.

Once the provisions of the new law steps into effect in August of 2010, card issuers will no longer be able to raise interest rates retroactively on existing credit card balances. In response, card issuers are doing one of two things, according to The U.S. News and World Report: Many card issuers are simply raising interest rates before the new law steps into effect. In addition, card issuers are switching many of their fixed-rate credit cards over to variable cards. This will allow them to take advantage of a loophole in the law, which continues to allow interest rate changes on cards with variable interest rates.

Although many experts feel it was the new bill that lit the fire beneath the card companies, card issuers blame the current economy and argue that the increase in rates is necessary to compensate for an increasingly risky lending environment.

Whatever the true motives may be, expect card issuers to continue to tighten terms and the credit card landscape to be increasingly perilous to navigate. More than ever, it’s important for cardholders to be proactive and take measures to protect themselves. Here are three ways to protect yourself against unfavorable changes to terms:

1. Keep your credit solid: A high credit score is an asset in any economic climate, but these days, it is a must. If you can maintain a high credit score and keep your credit reports impeccable, you should be able to remain, for the most part, immune to the cyclone of changes

2. Be selective about where and how you use your card: Card companies watch for certain purchase behaviors. When you use your card for a cash advance, it triggers a red flag. Also, avoid purchases with what creditors call “questionable merchants:” places such as pawn shops, tire retreaders, and marriage counselors; even charging all your grocery purchases to your card may not be such a good idea.

3. Vote with your feet: There are hundreds of banks and financial companies issuing credit cards, and if you don’t like the terms your card issuer are offering, you can always apply for a new credit card. In addition to applying for a credit card online, also condider looking into credit cards issued by small credit unions, which often offer cards with more cardholder-friendly terms and greater service.

Published: November 16, 2009