The 2009 CARD Act brought big changes to the credit card industry, most notably with regard to what banks could and couldn’t do when establishing account terms. Specifically, card issuers are now required to give consumers advance notice before any significant changes occur, such as an increase in the interest rate or a reduction of your credit line. If you’ve gotten a letter from your credit card company letting you know that changes to your account are on the way, it helps to know what your choices are for dealing with it.
Check out our credit card calculator.
Option #1: Attempt to Negotiate a Better Deal
Until the changes actually take effect, you shouldn’t think of them as being set in stone. If the credit card company suddenly wants to raise your rate or cut your limit in half out of the blue, you shouldn’t waste any time calling them up to find out why.
In many cases, changes of this nature are usually linked to negative information being entered on your credit report. If you know all your accounts are up to date and you’re not late on anything, you may want to pull a copy of your report to check for inaccuracies or errors. Initiating a dispute with the reporting agency is the next step if you find something that’s incorrect. From there, you can argue your case to the credit card company as to why the new terms are unnecessary.
If the change to your account is for a different reason, you could try to argue for an extension of your current terms. Keep in mind, however, that the bank may only be willing to play ball if you’ve been an excellent customer in the past. If you’ve missed payments here and there or you’ve been applying for a lot of new cards lately, the odds of keeping your existing contract are pretty slim.
Option #2: Transfer Your Balance to a Different Card
When your card issuer is completely unwilling to compromise on the account terms and you’re looking at a much higher rate than you’ve been paying, transferring the balance to another card may be your only option. If you carry a balance from month to month, a hike of even one or two percentage points will make the debt more expensive. Not only that, but it’ll take you that much longer to pay it off if you’re just sending in the minimum due each month.
Related Article: Making Things Right: Tips for Disputing a Credit Report
If you’re shopping around for a balance transfer offer, pay close attention to the fine print before you decide on a card. The CARD Act mandates that promotional periods on interest rates must last at least six months, but some cards may extend it to 12, 18 or even 24. You also want to look at whether there are any annual fees and what the rate increases to once the promotional period ends. Taking the time to compare what’s out there can help you find the best deal.
Option #3: Close the Account Altogether
Cardholders who aren’t able to transfer their balance to another card because of their credit rating may be able to sidestep the change in terms by simply opting out. The CARD Act requires credit card issuers to give consumers this option, but there is a price. In order to avoid the change, you have to agree to close your account.
The biggest drawback of going this route is the impact to your credit. The age of your accounts plays a big part in determining your score, so if the account’s been open for a while, it could knock a few points off to close it. Not only that, but you’re also reducing your debt to available credit ratio, which is a negative in terms of your score calculation. Before you decide to opt out, it’s important to weigh the potential damage to your credit against the cost of the rate increase.
Option #4: Do Nothing
Finally, you could just decide to roll with the punches when your card issuer proposes a rate increase or lowers your credit line. If you’re working on paying down the balance aggressively, the change may not make much of a difference in how much you’re going to shell out in the long run.
Find out now: What card is best for me?
If you don’t normally use the card and you owe nothing on it, keeping the account open is good for your credit score. Just be sure to monitor your statements regularly to check for any suspicious activity, since dormant accounts are prime targets for identity thieves.
Photo credit: flickr