While Obama’s election has a different meaning for all of us, if you are a credit card consumer, then his election has already touched you – and possibly significantly. After taking office in January, President Obama signed a new credit-card law on May 22, 2009 to offer greater protection to consumers. The first phase of the new “Credit Card Accountability, Responsibility and Disclosure Act of 2009” went into effect August 19th. In simplest terms, credit card issuers:
- must give cardholders 45 days notice before raising card interest rates (previously 15 days) permitting the cardholder to choose to pay off the account balance at the lower interest rate while agreeing to terminate use of the card for future purchases. This time also enables a smart consumer to shop for other credit card options before the new rate goes into effect.
- are required to mail bills 21 days before the account is due, giving more time to make payments and avoid late-payment fees.
Now some damage to consumers may have occurred from May to August of this year because some credit card companies scrambled to last minute modifications to “terms and conditions” to credit agreement prior to the first phase implementation. So compare your late ‘08 credit card statements to spring ‘09 looking for increased fees (remember, credit card companies literally make billions on these fees), reduced credit limits (this is the one that could negatively impact your credit rating), increased interest rates and increased minimum payment requirements.
If you noted any of these changes, now is the time to go to www.annualcreditreport.com and get at least one free credit report and see if there are any adverse effects on your credit report and you may also want to pay for your credit score (FICO) as well. Lower credit limits could mean your debt ratio could have suddenly changed and your rating actually dropped.
Speaking of FICO – here’s a quick update on FICO 08. All lenders now have access to this revised credit scoring model through all three major credit reporting bureaus. FICO 08 offers three “victories” for consumers:
· If you have debt that is in collections under $100 (i.e., unpaid parking ticket or small medical bill) no longer impacts your credit score
· The new version is less punitive to those who have had a serious credit setback like a car repossession years ago as long as other active credit accounts are in good standing, and
· In an effort to reduce the (what we call) deceptive “piggyback” practice used by credit repair services, a spouse or child are the only ones permitted to be an authorized user of a credit card prohibiting the “selling or renting” of authorized user slots as a direct means to boost rating scores of complete strangers who were most often high credit risks.
As I mentioned, one of the most damaging consumer fall out of these sweeping changes is the credit utilization issue. As limits were reduced, the gap between the balance and ceiling narrowed. Previously, consumers were advised not to exceed 30% of their credit limits, but suddenly that number ratio was literally blown out of the water when the credit cards “adjusted” their policies for the impending legislative changes.
Here are some tips to consider:
- Monitor your credit reports (remember, www.annualcreditreport.com) and correct errors.
- Pay credit card bills on time and keep card balances low BUT:
· Don’t close unused credit cards IF you have a high balance on any one card - owing the same amount by having fewer open accounts may lower your score!
- Hold on to any credit cards with long histories – they are your most valuable BUT:
· Maintain some level of activity on that card to ensure the creditor doesn’t cancel the account (their right to do so!).
- If you want/need to cancel some cards, do so only with the newest cards with low limits so it shows up on your report as “closed by consumer”.
I know this information wasn’t very fun or even entertaining, but it is so vital to your financial security and future. For more information, visit www.myfico.com (look for all the FREE information, not the paid services). I’ll keep working on the entertainment factor but in the meantime, talk soon.
Angie
