WASHINGTON — Rising unemployment is forcing more people to lean on their credit cards to make ends meet. Times are a-changing in the credit card industry, however, and it's becoming more costly and more risky to flash the plastic.
Here are a few answers to frequently asked questions about the sketchy state of the credit card industry and what you can do to protect yourself.
Q: It seems as if all my credit cards are raising interest rates, cutting credit limits or increasing monthly payments. What's up with that?
A: Call it the storm before the calm. Eight million lost jobs in the recession have left credit card issuers with billions of dollars in delinquent balances that will never be repaid. So dependable, paying customers are covering some of those losses through an assortment of new fees, higher interest rates and higher credit-scoring thresholds.
The card industry's moves also reflect changes that are pending under the Credit Card Accountability, Responsibility and Disclosure Act of 2009. The bill will make it harder for card issuers to increase rates and impose fees. Many of the toughest provisions haven't been implemented yet, so card issuers are changing the terms for cardholders now, in an effort to increase revenue and beat the new restrictions.
Q: My credit card has a fixed rate, though. Why is the bank allowed to raise the interest on a fixed-rate card, and what can I do about it?
A: "Fixed" doesn't mean the rate can't ever be changed. It means only that the annual percentage rate isn't variable, or tied to an index that changes over time.
Generally, the fixed rate on a card has a time limit, and a card issuer typically needs to give you only 45 days notice that your APR or other card terms are changing.
All notices provide information and a toll-free phone number that allows you to reject, or "opt out," of the pending rate increase for your existing balances. You can do so only if your payment isn't more than 60 days past due, however. Be advised: The issuer can cancel your card or suspend its usage if you reject a rate increase.
Q: If I reject the rate increase, or "opt out," will I be able to pay down my balance at the current interest rate?
A: Yes. Provisions of the 2009 credit card act allow consumers to decline rate increases by closing their accounts. If you do so, though, the issuer can double your minimum monthly payment or require you to pay off the balance — at the current rate — in five years.
Q: My credit card company recently closed my account even though I never missed a payment and was never late. They said it was because of a credit report review that showed my debt was too high. Do I have any recourse? Will this hurt my credit score?
A: Unfortunately, there's nothing you can do except ask the company to reconsider, and that's a long shot at best. Card companies are being extremely proactive about sniffing out poor credit risks and limiting their liability. This will only continue as the economy worsens, and credit will become harder to attain.
The closure of your account will hurt your credit score, but only in the short term. In the long run, making your payments on time and paying more than the minimum amount will more than offset any damage from the cancellation.
Q: The interest rate on my credit card just shot up to 30 percent even though I pay more than the minimum amount. The company refuses to lower the rate. What can I do?
A: It sounds as if you've been hit with a penalty rate and thrown into default. Your sin may have been a late payment, exceeding your credit limit or a black mark on your credit report.
Your best bet is to try to transfer the balance to a card with a lower rate. If your credit score is decent, you can do so by opening a new account. If not, try putting the balance on an existing account with a lower balance.
While you're at it, check to see whether interest rates on your other cards have jumped as well. This could make it harder for you to transfer the balance. If these options fail you, contact a credit counselor.
Q: I think my credit report has misinformation in it. How can I find out and correct it?
A: Your instincts are probably correct. About 70 percent of credit reports have errors. To find out, simply request a copy of your report from the reporting agencies below.
If you see misinformation, initiate a dispute with one of the three credit reporting agencies. It isn't difficult to do, but it can be time-consuming. If you get relief in less than 30 days, you've done well. Don't be surprised if it takes 45 days or more.
Or you can do it the old-fashioned way, by writing letters to the agencies. You can obtain a form letter for disputes from Interest.com.
Mail the completed forms to TransUnion Consumer Solutions, P.O. Box 2000, Chester, PA 19022-2000; Equifax Information Services LLC, P.O. Box 740241, Atlanta, GA 30374; and Experian National Consumer Assistance Center, P.O. Box 2002, Allen, TX 75013.
Q: What if the information is proved to be false and the companies still don't remove it?
A: That would be a violation of the Fair Credit Reporting Act. You're entitled to actual and punitive damages if such a violation is proved to be intentional in a court of law.
The best first step, however, is to notify your state attorney general of such a problem. You also can contact the Federal Trade Commission toll-free at 877-FTC-HELP (877-382-4357).
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