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Credit card reform spurs rate hikes
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If you’re like 80 percent of Americans you have at least one credit card. About half of card users carry a balance. Even if you’ve been paying monthly on your credit card balance you may get a letter from your card company informing you of a rate increase. Unfortunately the increase goes into effect on December 1, just in time for holiday shopping sprees.
Card companies are racing to hike fees and rates before the Credit Card Accountability, Responsibility, and Disclosure Act goes into effect next year. According to the Act card companies will be prohibited from such practices as:
- Retroactive rate increases on existing balances
- Rate increases because of late payment on any other account
- Setting due dates that are almost impossible to meet or that change every month
- Charging interest this month based on last month’s balance
Be sure to read all correspondence that you receive from your card company so that you are aware of impending rate increases. Also look for any changes in terms such as a fixed rate card changing to a variable rate. Under the new law, the interest rate on a variable rate card can change based on and index such as the prime rate.
You can choose to opt out of the rate increase but that will require that you pay off the card and never use it again. This move effectively closes that account and your credit score could be negatively affected.
A better choice may be to stop using the card for new purchases and pay it off gradually. Then just use it for occasional charges that you can pay off when the bill comes.
Other tactics to consider:
- Don’t use credit cards for your holiday shopping. Only buy what you can pay for at time of purchase.
- Shop around for a card with a lower rate. Consider transferring your balance to the new, lower rate card. Beware of transfer fees and make sure that your new card has a credit line that can handle the balance to be transferred.
- Join a credit union and apply for its credit card
For more information:
Congress addresses drastic credit card interest hikes
Credit card companies are making changes
Credit card reform at last
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