Part 2 of 2

How to protect yourself.

• Keep in mind the interest rate increases won’t affect you if you’re not carrying large balances.  Going from 9.99% to 14.99% isn’t going to really impact your wallet if you’re already living within your means rather than living on credit.
  • Be aware of the fine print on your credit cards.  If you know that the new card with the 0% introductory rate for the first 12 months is going to instantly jump to 24.99% if you’re even a day late during that time frame, you’ll probably be a little more careful about making sure the payment is sent on time.
  • Pick cards with lower long term rates rather than teaser rates that expire and then go up.  The longer you have a card the better it is for your credit score, so you want cards that will still be useful to you 2 or 3 years down the road.
  • Read the mail you get from your credit card issuers.  I too have been guilty in the past of just finding the payment due and ignoring the rest of the information stuffed in the envelope, and I’ve been burned by it.  The banks are notorious for slipping in information about rate changes or changes in your terms of service.  Stay informed, that way you’ll be able to change your spending habits before the card goes to 99.99% next month.
  • Cash advances…  just don’t do it.  The interest charged on cash advances is always significantly higher than the rate charged on regular purchases, and to add insult to injury, when you pay your bill each month the credit card companies are going to apply your payment to your normal purchases, not the higher interest cash advance balance, first.
  • This one may be obvious, but PAY ON TIME.  Don’t count on the postal service to get the payment to the bank in a timely manner, send the payment early to be safe.  Remember that until the new laws are being enforced you’re still subject to universal default, so that one late payment could cause the interest rates to go up on all your cards.
  • Along with the obvious pay on time, there’s also stay under your credit limit.  Over limit fees and the increased interest rates are only getting worse and worse, so do your best to avoid them completely.
  • Pay in full to avoid interest.  Credit cards should be used as a convenience, not a replacement for income, so if you’re spending within your means this should be easy to do.  If you’re not living within your means, it’s time to draw up a reasonable budget and figure out what it’s going to take to get your finances in check.
  • If you find yourself using your cards more than you should just to make ends meet, don’t be afraid to ask for help.  Feel free to give our experts a call at 1-888-WHY-FICO.  We can give you the unbiased advice based on our experience that will help you get on track.

Consumers need to be especially vigilant about their credit cards for the next few months.  I’m sure you’ve all heard that major regulatory changes were signed into law back in May, 2009 regarding how credit card companies can operate, but keep in mind the law does not go into effect until February, 2010.  That means the credit card companies still have 6 more months of business as usual.  Here’s a few things be careful of in the meantime.

• After the law goes into effect “universal default” will go away, but it’s still in place now.  Universal default is a practice were credit cards companies B, C, D, and E all raise your interest rates after you pay credit card A late.  So be especially careful about getting those bills paid on time.  Which brings us to the next point, due dates.

• After February, the credit card companies will have to give you at least 3 weeks from the billing date to make your payment before you’re late, they won’t be able to arbitrarily change the billing date, and it will be illegal for them to set the bill due at, say, 11:00 AM when they know the mail doesn’t come in until 2:00 PM.  So that means in the meantime they can do all of those things.  Be sure you open your statements when they arrive and check the due date on them.  If you’ve forgotten to mail a payment out and realize that you aren’t going to be able to get it to them in time, you might need to suck it up and pay one of those astronomical phone pay fees, because if you don’t you might just see the rates on all your other cards go up because of universal default.  Your cards going from 12.99% to 24.99% is going to cost you a lot more than that $35.00 phone pay fee.

• Know your credit limits and balances.  Come February you will be able to “opt-out” of exceeding your credit limit.  Your purchases will be denied if they exceed your limit.  Right now though, credit card companies can still approve transactions that put you over the credit limit, allowing them to charge ridiculous over limit fees, raise your rates, lower your limits, etc.  You’ve got to protect yourself until then though, by being aware of how close you are to your limits.

So make sure you’re reading your bills carefully.  That doesn’t mean that after February everything will be hunky dory and you can just sit back and trust the credit cards companies to do the right thing, which of course is ridiculous.  The best person to protect you from unfair business practices isn’t the government; it’s you, so regardless of regulations watch out for yourself.  Use some good old fashion common sense—spend only what you can afford, pay your bills on time, and don’t let anyone take advantage of you.