Top 10 credit card tips for 2011

With credit cards, the same advice always applies: shop around, use credit cards lightly and pay on time. Less obvious is how to manage credit cards in light of new rules brought about by the Dodd-Frank Act, Federal Reserve regulations and the Credit CARD Act. Taken together, these rules provide increased disclosures to consumers, new protections and important loopholes every cardholder should know.

With these changes in mind, here are 10 tips for navigating the new credit environment in 2011.

1. Carry cash or debit for small purchases

The Dodd-Frank Wall Street Reform and Consumer Protection Act allows retailers and other merchants to set a minimum purchase amount for credit card transactions. “The minimum purchase amount must not exceed $10 and does not apply to transactions made with a debit card,” Visa explains on its website.

In the past, some merchants imposed credit card minimums on customers, but did so in violation of card network rules. Vendors can now set a $10 credit card minimum without fear of penalty.

Avoid this potential restriction by always carrying at least $10 or a debit card in your wallet.

2. Under 21? Know the new rules for getting a credit card

Under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or Credit CARD Act, if you’re under 21 years of age, you must have either sufficient income or assets, or a co-signer to get a credit card. Issuers aren’t required to offer a co-signer option, however. Bankrate.com surveyed some of the major card issuers recently and found that some don’t permit co-signing.

Before submitting an application, check with the card issuer to find out what the policy and procedure is regarding applicants under the age of 21.

3. Save the credit card agreement summary

In addition to the credit card agreement itself, new cardholders must receive a one-page agreement summary, as required by Federal Reserve regulations that took effect July 2010. This summary should highlight the key terms of your contract. File it away for future reference.

4. Watch for changes to existing accounts

Under the CARD Act, issuers must provide notice of certain changes to accounts 45 days before they take effect. For instance, issuers must give 45 days’ advance notice before increasing the required minimum payment. The law doesn’t require advance notice of all changes, however. Changes that don’t have to be announced ahead of time include credit limit reductions and account closures.

Certain changes you can opt out of, such as increases to fees that were disclosed in the account-opening table. To allow for response time to an undesired change, open mail from card issuers immediately.

5. Use credit cards you don’t want to lose

Though the Credit CARD Act banned issuers from charging inactivity fees, nothing prevents an issuer from shutting down an unprofitable account or reducing the credit limit. As our 2010 study of credit card fees shows, a number of card issuers close accounts if they go unused for too long.

While there are no guaranteed ways of preventing an unwanted shutdown, it’s smart to regularly use credit cards you want to keep. Pay in full to stay out of debt.

6. Watch for your free credit score if rejected for a credit card or loan

Thanks to a provision in the Dodd-Frank Act, you will soon have the right to see your credit score — for free – if the lender or company has rejected your application or approved you for a higher rate because of your credit report or score. The creditor must send an adverse action notice containing the score used against the consumer, which means that you might even see a credit score not sold to consumers, such as FICO 8 scores.

As of Jan. 1, 2011, access to free credit scores may broaden. New risk-based pricing rules take effect that require creditors to inform applicants in certain cases that they didn’t qualify for the best terms. An exception to that requirement is if the creditor provides a free credit score disclosure to anyone who applies. In other words, if the lender opts to provide free credit scores to all applicants instead of just to applicants who receive bad news, you may get a free credit score just for trying to open an account.

7. Make use of credit freebies

You don’t have to rely on regulations to obtain a free credit score. The Bankrate story, “How to get a free credit score,” shows you five websites, including Equifax.com, through which you can order a free score that isn’t attached to a fee-based credit monitoring service. While the score or score range delivered is not an actual FICO score, the score most commonly used by lenders, you will get a sense of whether you have “good” credit.
Remember to check your credit report as well, since your credit score is based on it. You have the right to request a free copy of your credit report from each of the three major credit reporting agencies once every 12 months under federal law. You can order your free credit reports all at once or throughout the year. Be sure to visit AnnualCreditReport.com, the centralized source for free annual credit reports under the Fair and Accurate Credit Transactions Act, and not a for-profit website that charges monthly fees after a trial period. Once you receive your report, examine it carefully and dispute any inaccuracies.

8. Maintain a high credit score

Because of the tight lending environment, it’s more important than ever to have a good credit score to obtain loans and credit cards at attractive terms. Even if you aren’t applying for new credit, maintaining a good credit score can help you avoid paying more to rent an apartment, hook up utilities or get a new mobile phone.

Use your credit cards wisely to keep your credit score high. Pay on time, keep balances low even if you pay in full every month and apply for new cards only when necessary. For additional tips, check out the Credit Card Adviser column.

9. When shopping for a new credit card, make sure your credit score meets the grade

On credit card comparison sites such as Bankrate.com, you’ll notice that each card offer tells you how good your credit score needs to be. Don’t waste a ding to your credit score applying for a card that’s beyond your credit reach. Get your score range for free using this FICO score estimator. For best results, answer the questions using a recent copy of your credit report.

While there aren’t universal score cutoffs used by all lenders, this scoring product sample from Equifax, one of the three major credit reporting agencies, gives you a general idea of how your FICO score ranks. With a better understanding of your credit score, you can then shop for a credit card appropriate for your credit level.

10. Make a payment plan if you have credit card debt

If you have balances on multiple credit cards, use a pay-down strategy to reduce your debt. One approach involves making a larger payment on the card that has the highest interest rate while making minimum payments on all other credit card accounts. When the most expensive balance is paid off, you then tackle the card with the next-highest APR and so on until all balances have been eliminated. In another approach, you make larger payments on the card with the lowest balance, and minimum payments on all other cards, so that smaller debts are paid off more quickly.

Paying down high-interest debt makes the most financial sense, but reducing the number of credit card bills you receive may feel more rewarding. Go with the strategy you can follow.

Source: Bankrate

Tags: Credit Card, credit card tips

Posted by FinanceAZ on Jan 12 2011. Filed under Credit cards. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry