This week, the Credit CARD Act of 2009 finally goes into effect. Some parts of the law were phased in as early as August of last year, but consumers had to wait until now for most of the biggest changes.
For the most part, the new rules will just stop problems before they start – like cracking down on so-called “universal default,” which previously allowed lenders to raise your interest rates if you were late on an unrelated payment. So if you pay your gas bill late, you don’t have to worry about your Visa interest rate going up (though late payments will still affect your credit score which may change the rates you’re eligible for on your next credit card).
Some of the most visible changes will affect teens and college students. If you’re under 21, you’ll need one of your parents to co-sign your application for a new credit card, for instance. And you’re unlikely to see credit card sales reps offering free t-shirts in the student center – the new rules prohibit banks from soliciting new business within 1000 feet of a college campus.
If you carry a significant balance on your credit card, the new rules could be a big help. Before your bank can raise your interest rate, they’ll need to give you 45 days written notice. And if the increase is big, you now have the option of closing your card and paying off the balance at the current rate.
And for those of you who only make minimum payments, you’re going to reminded monthly of the cost of that mistake. Starting this month, expect to see a “Minimum Payment Explanation” laying out exactly how long it will take to pay off your balance. For example, a mere $2000 on a card with an 18% APR will take 15 years to pay off if you only chip in the minimum each month. We’ve told you this before, but now you’ve got no excuse! From our perspective, this kind of transparency is what gives the consumer power.
Last but not least, watch out for annual fees on cards that used to be free. All these restrictions mean less revenue for lenders, so you can expect them to try and make up for it with annual fees. Unless you are getting some really amazing benefits, it’s probably not worth paying a fee for a credit card. Remember, it always pays to shop around for credit cards, bank accounts, and everything else.
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[...] on a credit card for a friend. New laws went into effect this year to require every credit applicant under age 21 to obtain a co-signature on the account. When [...]