Improving your credit and initiating your own personal finance reform is easier than it was a few years ago, largely due to the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. The CARD Act took effect February 2010, and it made several changes to the way credit companies process payments. Most notably, the Act requires credit card companies to put the full amount of your payment (over the minimum) on higher interest balances.
However, the CARD Act has a few more legislation changes, all of which will go into effect in August 2010. Many of these changes would allow credit card companies to assess fees and penalties more liberally and to raise interest rates. In order to make sure that you come out unscathed, here are eight pitfalls you should avoid:
Know your rights.
Your credit card company must inform you of any changes to your interest rate or fee scheme a minimum of 45 days before the change is enacted. You do not have to continue business with your credit card company; you can cancel, even if you have a balance.
If you do have a balance, you will still have to pay that balance but your credit card company cannot require you to pay it back immediately. Beware, however, as they can and commonly will increase your monthly payments.
Know your limit.
Literally. Your credit card company also reserves the right to lower your spending limit. If you aren’t reading every piece of mail that comes from your card company, you may find you have reached your limit or even surpassed it, and it’s too late to do anything about it.
Decide how “Over-the-limit” should be handled.
If you are concerned about this happening to you, you have the right to ask your credit card company to deny any purchases that would put you over the limit (as opposed to granting you the credit to cover the purchasing and assessing fees later).
Know what “no-interest” means.
Specifically, know the terms if you open a card with a low or zero-percent interest rate, as well as what type of transaction is included and how long the rate is in effect.
Keep some credit.
Whatever your situation, make sure that you keep at least one credit card and use it on occasion (if only to pay off immediately). Your credit score comes from your history of credit use and repayment.
Make sure “rewards” are worth it.
If you have a rewards credit card, or you are considering opening one, make sure that the rewards are actually rewards and not just offsets to higher fees, interest rates, and transaction costs.
Take precautions.
The credit card industry is all about specifics; the details cost the most. As such, take precautions against increases there. Make your payments on-time and understand the circumstances under which your interest rate would increase.
Stay involved.
If you do not understand something, call your card company. If you think the new interest rate is too high, call your card company. Stay involved, and make sure you understand why changes and charges are in place. In addition, sometimes simply asking the credit card company to lower your rate or waive a fee will get results, but only if you ask.
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