New rules, new discipline
Credit cards are wonderful tools for long-haul owner-operators. Unless they’re used wisely, they’re also dangerous traps. The quick-fix appeal of easy credit is one of the biggest hazards of a prolonged downturn, as Lucinda Coulter’s story on Page 30 makes clear.
Mastering the rules of the credit card game will help ensure that your credit cards remain tools, not traps. Rules recently changed in favor of consumers, but lending is a business. Big business. One way or another, customers will pay to feed the machine.
As of Feb. 22, when the new credit card law kicked in:
• Banks can no longer hike your interest rate at any time. Now they’ve got to wait a year to raise rates (unless an introductory rate has ended). On existing balances, payments must be 60 days past due before the rate is raised. However, there is no cap on rates.
• No longer can banks slap on fees willy-nilly – activation fees, annual fees, dormancy fees – as was often done in the high-risk market, which includes many owner-operators. The Premier Bankcard, for example, reportedly charged more in first-year fees ($256) than it offered in its first-year credit line ($250). Now such fees are held to 25 percent of the first year’s credit limit. After that, there’s no cap on fees.
• No longer can banks gouge you in other aspects too numerous to detail here. The new law includes protections against over-the-limit fees, irregular billing cycles (yielding more late fees), and “universal default” fees (triggered by late payments on things like utility bills).
Another helpful feature is that credit card issuers cannot send out statements that only an accountant peering through a microscope could decipher. Statements now must be more readable. They must tell you how long it will take to pay off your balance if you make only the minimum monthly payment, and how much you need to pay to clear the balance in three years.
If those numbers make you want to breathe long and hard from your exhaust pipes, yet another statement addition is there to help – a credit counseling service phone number. Of course, it’s far better not to reach that point. Your No. 1 job regarding credit is to spend within your means.
Regard credit card issuers like any other business partners.
Beyond that, the new credit card law is best when matched with basic attentiveness. Check each statement closely for accuracy, fees and interest rate. Read those boring letters about changes to your account. Visit annualcreditreport.com periodically to make sure your credit report is accurate.
Even with these welcome protections, the bottom line is banks can raise rates and add fees like drunken pirates as long as they adhere to waiting periods and other restrictions. Regard credit card issuers like any other business partners – keep an eye on them, and if you’re treated unfairly, find a replacement.