Over the past 6th months I’ve seen my credit card interest rates drop to as low as 9.24%, just to be raised again in anticipation of the new credit card bill passed by President Obama, the “Credit Card Accountability, Responsibility and Disclosure Act.” The bill is intended to help consumers against credit card interest rate hikes by the banks. If this bill is supposed to help consumers against interest rate hikes why did mine just go up?
What does this mean for current card holders?
In the next several months you should be getting letters in the mail from your credit card companies explaining new changes to your terms & conditions. You will see higher interest rates and fees because they will no longer be able to change the APR’s on existing balances under the new bill.
What does this mean for new credit card offers?
It will be much harder to get approved for a credit card. They are tightening up who they allow credit. If you do get accepted, you will see a lower credit limit than what you would expect. For those who are 21 years and under will need to show they have an independent source of income or will need a cosigner. This is particularly good because credit card companies would prey on college students often getting them into debt before they graduate. Under this new bill it also helps protect young people from being irresponsible.
How does this effect the communication between the consumer and the credit card company?
Credit issuers will no longer be able to raise interest rates on existing balances. In a case when a payment is 60 days late they are allowed to raise the rates as high as they want. Not much has changed here right? The only difference is they are required to inform you 45 days in advance and explain the reason for the increase. In addition, your statements will be sent at least 21 days before your payment is due.
To help card holders stay away from debt, statements will clearly show how much it’s costing you to borrow and how long it will take to pay off a balance if you are making the minimum payments. If you can avoid it, never pay the minimum, always pay more. If you are paying the minimum payments now, you will see when these updated statements come, that by paying only the minimum payments, you are often further in debt the next bill cycle.