When the Credit Card Act was signed into law last year, credit card issuers got busy figuring out ways to replace the income they were going to lose when the act went into effect.
One way was to begin raising rates across the board immediately. So some consumers with excellent credit who had always paid on time and had enjoyed low rates for years were suddenly faced with huge jumps in interest rates.
For those with poor or marginal credit, the rates went even higher. Now it isn’t unusual to see interest rates exceeding 30%.
Of course, the smartest thing for these consumers to do is to get those cards paid off as quickly as possible – and to stop charging.
Other card issuers, expecting that the prime rate cannot stay low forever, changed to variable rates tied to prime. They won’t get hurt when their cost of funds goes up because they’ll be able to pass the cost on to their customers.
Still others have instituted annual fees.
The price of these fees can vary greatly, so if you get the required 45 day notice that your card is going to impose an annual fee, do your math.
Rewards cards are the ones most likely to charge a fee, and depending upon the rewards, the fee could be hefty. So figure out what you stand to gain from the rewards and weigh it against the annual cost. You may find that you’ll be better off using a different card.
Some cards, known as “Fee harvester cards,” charge other fees as well. Some charge an application fee, while some charge a monthly fee or a transaction fee. Some even charge an “inactivity fee.” And some are offered with interest rates that look like they must have been typographical errors. I saw one card offer with a 60% Annual percentage rate.
The Credit Card Act has put a limit on these cards. Where they once could charge up-front fees of $160 or more to obtain a card with a credit limit of $200, they are now limited to charging only 25% of your credit limit in fees during the first year.
The bottom line is this: Credit card issuers aren’t there to help consumers. They’re there to make money. So read everything before you apply for a new card, and keep a close eye on all statements and correspondence regarding your existing cards.
Author: Mike Clover
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