As new regulations from the Credit CARD (Card Accountability, Responsibility and Disclosure) Act take effect on February 22, 2010, many consumers are still curious about the net impact to their daily lives. Bills.com, one of the leading resources for free, personalized and expert money advice, offers the following tips to help consumers better prepare for the Credit CARD Act changes and avoid potential negative consequences.
“The CARD Act is a good thing in that it seeks to eliminate unfair practices and make the entire credit fee practice more transparent,” said Brad Stroh, co-founder and CEO of Bills.com. “However, for many consumers, it will likely mean more headaches in managing their credit card account, and at the end of the day these changes could actually lead to higher fees or reduced lines of credit.”
5 sensible credit card management tips:
1. Maintain prompt payment status with your credit card company. Demonstrating that you can responsibly meet your current credit obligations is the number one behavior that will impact your standing with the credit card company and your credit score. By missing or being late on a payment, you will incur fees, potentially increase your interest rate and lower your overall credit score.
2. Pay down high balances to improve credit card utilization. This will show that you can responsibly manage your credit limit, minimizing the chance of higher tiers of interest rates or reductions in credit limit. Additionally, better credit utilization will help boost your credit score.
3. Maintain activity on your credit card accounts. By using the revolving credit lines that you need or want to keep and promptly paying on them, you can help avoid cancellation of those credit card accounts. Additionally, some credit card companies are introducing inactivity fees. This behavior will avoid those fees and help boost your credit score, while having a long existing credit line closed could lower your score.
4. Avoid fees through responsible spending habits. Credit card providers will likely look to recoup revenue by charging fees for extra services. New regulations prohibit over limit provisions unless consumers opt-in to the service. Card providers could then charge consumers for this right. By remaining aware of credit limits and balances, consumers can avoid a need for these fees altogether.
5. New regulations do not apply to corporate or small business cards. This means some small business owners might consider using personal cards for business expenses because of fee and rate limitations. However, these owners should remain cautious because their personal credit scores could suffer in the event of missed payments or defaults.
“It is important to remember that these new regulations do not limit interest rates, they only make the communication with consumers more transparent,” continued Stroh. “The best approach to these changes is to be proactive and adjust personal behavior to avoid negative implications.”
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