Some Credit CARD Act Laws Are Already in Effect
The majority of new regulations mandated by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act go into effect on February 22, 2010, but several of the new credit card laws in the bill actually took effect on August 20, 2009.
The consumer credit laws already in force include the following:
- Credit card companies must mail out your monthly billing statements 21 days before the payment deadline, up from the previous 14 days. The extra week is intended to help you meet the deadline and avoid the late-payment fees and the higher interest rates that are typically imposed if you make a late payment.
- Another Credit CARD Act mandate already in effect requires credit card issuers to give you 45 days' advance notice before increasing the interest rates or fees on your account. That 45-day notice (an increase from 15 days' notice under the old rules) also applies to any other major changes to your credit card account(s).
- Under the Credit CARD Act, the advance notice also allows you, as a credit cardholder, to reject any interest-rate or fee hike that your credit card issuer tries to impose. Rejecting the proposed increase will allow you to pay off your existing balance at your current interest rate. However, you'll no longer be allowed to make purchases with that credit card, and once you've paid off the existing balance, the credit card company will close your account.
Unfortunately, closing a credit card account can have a dual impact on your credit score:
- Closing a credit card account reduces the overall amount of credit at your disposal, which increases your credit utilization ratio (i.e., the ratio of your combined credit maximums to the amount of credit being used at any one time). That ratio makes up approximately 30 percent of your credit score. The lower your ratio is, the better. (Lenders and credit card issuers don't look kindly on consumers who are maxing out their available credit lines.) A closed account will likely increase your utilization ratio and lower your credit score.
- Also, the length of your credit history accounts for 15 percent of your credit score. Closing an account you've used for years can significantly shorten your credit history, again resulting in a drop in your credit score.
The Credit CARD Act was enacted to help protect credit cardholders from widespread abusive practices in the credit card industry. But even with the new law, you still need to play an active, ongoing role in monitoring your credit to fully protect yourself. FreeScore offers you unlimited access to your credit scores and reports, as well as a service that monitors your credit records at all three credit reporting bureaus and alerts you whenever changes are made to your credit files.