The first part of a new credit card law went into effect last month that gives consumers more information about potential changes to their accounts, but still gives lenders a long rope in how they handle individual credit card accounts.
New Changes
Credit card issuers are now required to give customers at least 45-days notice before changing rates or fees. They also won’t be able to count a payment as “late” unless the bill was sent at least 21 days before the due date.
While these changes are a welcomed first step, they don’t go far enough to protect consumers from many of the practices banks started during the financial market meltdown. Lenders still have the right to reduce your credit line, close an account without warning, or institute a rate increase if the account is 60 days or more late.
Credit Limits Slashed
Credit card issuers are reducing available credit to millions of borrowers, even those who’d paid their bills on time. Some good customers saw a drop in their credit scores during the last six months. A study by Fair Isaac Corporation showed that 8.5 million consumers’ credit scores fell from October to April. These were people who had no indication of a possible reduction such as late payments. The average reduction in available credit was over $5,000 and the drop in credit score averaged 20 points.
A 20-point drop doesn’t mean very much if a person has a high credit score of 800. They’ll still qualify for the best rates. However a consumer in a lower credit score band would definitely feel the effect of a 20-point drop on loan rates on whether they qualified for a loan at all.
What does it Mean to You?
If banks are reducing their best customers’ access to credit and their credit scores are dropping, financially troubled customers’ credit access and ratings must be really taking a beating. Where do you stand?
If you’ve been putting off checking your credit score, now is the time to face your fears and find out. Knowledge is the first step for change. Improve your score by adopting better strategies for repayment of outstanding balances and use of credit.
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