Phase two of the Credit Card Reform Act (also known as Credit Card Accountability Responsibility and Disclosure Act of 2009 and the CARD Act) is going into effect on February 22. If you haven’t already, you must review, review, review your credit card agreements, as lots of changes are going on. We personally have a card whose issuer just added a $60 annual fee (though it’s refundable if we charge at least $2,400 per year). So, now, we can choose to accept these new terms or close the account and pay our balance according to the original terms.
Here are some savvy things you can do this weekend, before the CARD Act takes place on Monday, February 22:
Transfer Your Balances While the Going’s Still Cheap(ish)
If you were considering transferring your existing balance to another credit card, now might be the time. The cost of balance transfers has been rising quickly, with some cards like Chase Freedom charging as much as 5% for the privilege (a year ago, fees tended to hover around 3%). We don’t know how high those rates will climb in the future, so if you’re going to transfer your balance, do it now while the cost is still relatively low. Of course, we’d like you to pay all your bills in full, on time, so that you’ll have little or no balance at all.
Mind Your Terms
You have 45 days to opt out of any changes to your agreement. So, don’t ignore your mail (snail and email). If, for example, your card will start charging a dormancy fee (forcing you to pay if don’t use it regularly enough), you can make a conscious choice to change your spending patterns. Similarly, if your card charges an annual fee when you don’t meet the minimum purchase requirement, calculate how much you’d need to charge each month to avoid penalty. If you have more than two cards, consider consolidating. That way, you can spend on only one card without worrying about inactivity fees. Yes, there are even fees for not using your card!
Weigh Your Card Options
Many card companies entice customers with special offers. Survey all your current cards with an eye for interest rates, balance transfer costs, dormancy fees, annual fees, rewards—everything. (Here’s where to find important info within your credit card terms). If some cards come out much better than others, consider making a different card your main credit card in order to take advantage of lower APRs, better rewards, and favorable balance transfer rates. All the same, keep in mind how long these promotions will last before reverting to different terms.
If you’re thinking of getting a new card, consider waiting (the very short while!) until after February 22. Credit card companies have been scrambling to sign new cardholders before the CARD Act goes into effect; many of the cards being touted now have some of the worst terms in years. The average purchase APR was 13.51% last quarter, the highest of the last five years. In the past quarter, there were more cards that carried an annual fee than in all of the last decade. Meanwhile, if you wait, the CARD Act will ensure that you’re protected from interest rate increases during the first year of service. As companies increasingly vie for cardholders, it will be easier to come by sweet deals for those with good credit.
The Moral of the Story
Above all, remain vigilant so you’ll notice customer promotions and sneaky card changes alike. If you need a credit card, you’ll probably be better off if you wait until after Monday to apply. Meanwhile, good credit habits still hold true: Be mindful of what you spend, and always pay your whole balance—on time.