Fighting credit-card changes

By CLAUDIA BUCK, Sacramento Bee

Pull out the plastic and you may get your hand slapped.
That’s how a lot of consumers are feeling these days as credit-card companies clamp down.
From American Express to Washington Mutual, card companies are getting tougher on terms: Credit lines are being yanked. Minimum payment amounts have jumped. Interest rates are doubling. Card transactions are being declined.

And consumers are fuming. Especially those who say they’ve never been late or missed a payment.
Last month, retired Sacramento, Calif., city employee Terry Moreno got a double whammy on her Chase credit card: The minimum payment more than doubled, to $486, and a new $10 monthly charge was tacked on. Donald Divelbiss, a retired McClellan, Calif., aircraft mechanic, said his Washington Mutual credit-card interest rate is tripling, going from 9.9 percent to 29.9 percent.

And Sacramentan Karen Nordyke’s credit limit on her Wal-Mart/Sam’s Club card was cut by half to $150.
“I’ve never been late. I’ve never had a problem and all of a sudden, my credit line is down to $150,” said Nordyke. “How can you get good credit when they keep dropping your limit?”
It’s a familiar refrain from consumers across the country. And like everything these days, it’s all about the economy.

Credit-card companies are getting hammered by the same financial pressures affecting their customers. Faced with rising rates of delinquencies and defaults, they’re trying to cover their losses. Meanwhile, cash-strapped consumers and small businesses — battered by job losses, layoffs and rising costs — are tapping their credit cards for even basic spending.

Delinquencies on U.S. credit cards rose to record highs in January, according to a Fitch Ratings survey released last week. It said payments more than 60 days late rose to 3.75 percent, beating the previous record set in 1997.

“Card issuers have consumers on a much shorter leash because of the economy,” said Greg McBride, a financial analyst with Bankrate.com. To protect themselves against mounting delinquencies, he said, credit-card issuers are cutting limits, raising rates and increasing minimum payments.
The bad news: It’s perfectly legal.

The good news: Under rules adopted in December by the Federal Reserve, banks will no longer be able to raise credit-card rates without good reason and must give you more warning — and in type that’s more prominent and visible on your billing statement.

The not-so-good news: Those changes won’t take effect until July 1, 2010.

Beth Mills of the California Bankers Association said banks nationwide are working to get those changes in place, while still “managing their credit risk” in the shaky economy.

To avoid further credit-card pain, here are some tips from financial experts:
— Complain — nicely. “If consumers feel their credit limits, for instance, have been reduced unfairly, they should talk with their bank or other credit-card issuer to see if there’s a valid reason,” said Mills. “Find out why and see if that credit line can be reinstated.” The same goes for hikes in interest rates or minimum payments.

Moreno, for instance, was able to reach a compromise with her card issuer: She got her minimum payment restored to $197, but at a higher interest rate.

— Shop around. For those with good credit scores, it’s an ideal time to find a better deal, said McBride. Use credit-card comparison calculators, like those at http://www.lowcards.com or http://www.bankrate.com. The Federal Reserve also has a handy comparison checklist on its Web site (www.federalreserve.gov).
And look at local banks or credit unions, which may offer lower credit-card rates.

— Consider transfers. Look into transferring your balance to a lower-interest-rate card. But be wary of fees and low introductory rates that can expire.

— Be cautious on closures. Lots of fed-up consumers want to close their accounts. But experts warn it can backfire. You’ll hurt your credit score if you close older accounts that show long credit history. With fewer cards, you’ll likely increase your debt-to-available-credit ratio.

If an account is closed, work hard to reduce the balances on other cards to keep that credit ratio healthy. Otherwise, you could face even more rate increases.

— Pay on time and more than the minimum. Both will help avoid fees and whittle down your debt. Know the date your payment is due, especially if you have more than one card.

— Avoid unnecessary fees. In addition to late payments, there are extra charges for exceeding credit limits, cash advances, returned payments, transferring balances or paying by phone.

— Watch for changes. Read your monthly bill and be aware: If you have a card with a low introductory rate that’s expiring, credit-card companies are not required to send a notice when your interest rate is going up.
And while those 2010 credit-card changes may sound like welcome relief, there’ll be a price, says McBride.
“It’ll certainly level the playing field between consumers and cardholders,” he said. “But it’ll make credit more expensive and difficult to come by for consumers without much credit or impaired credit.”
They’ll be stuck with higher interest rates and smaller credit lines, he added.

In the meantime, McBride advises: “Don’t take this sitting down. If you have credit-card debt, it’s time to focus on paying it down. … If you’ve got good credit, be on the prowl for cards with better terms so you can speed up debt repayment.”

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