Check Your Mail—Credit Card Changes Are Coming

Now is one of those times when ignoring a letter from your creditor may really cost you.

Credit card companies are making major changes to their customer agreements that could leave you with new fees, higher rates and lower credit limits—and not being aware of the changes could mean unnecessary charges or an embarrassing moment at the store when a purchase is rejected.

The changes are coming as lenders prepare for new rules under the credit card reform act approved last spring that goes into effect early next year.

“Whenever there is new legislation, lenders find a way to get their fees in,” says Marwan Forzley, president and CEO of eBillme.com, an online payment service.

The new rules that start Feb. 22, 2010 are the second part of the Credit Card Accountability Responsibility and Disclosure Act of 2009, which was designed to protect consumers from deceptive credit card practices. (The first part of the legislation went into affect in August 2009 which forced lenders to give 45 days’ notice of rate changes and allow 21 days from when they mail a bill for the payment to be due.)

However, credit card companies are making changes to their customer agreements now while they still can so that customers are locked into rates and fees before February. Mailboxes are now being flooded, alerting customers of changes which can easily be mistaken for junk mail.

“It’s quite prevalent,” says Ben Woosley, director of marketing and consumer research at CreditCards.com, about the changes. “My guess is that almost everybody has been affected.”

Here are some major details to look over as you begin reading over your notices:

From fixed to variable rates: Once the legislation goes into effect next year, credit card companies won’t be able to switch their cards from fixed rates to variable rates.

As a result, issuers are changing outstanding fixed rate cards to variable rates, a change which will mean a higher interest rate for most people.

You have the option to opt out of a higher interest rate and the card will be closed for future purchases while you pay back the card at the original rate.

This could be a “pretty good feature” for some customers, says Bob Brooks, author of "Deceptive Money" and radio show host of "Prudent Money Radio Show." But, Brooks warns, that depending on your credit history and the age of the account, closing a credit card can negatively affect your credit score.

If you do close the account and still need a credit card, finding another one at a fixed rate credit card is going to be tough, experts say. However, some credit unions may still offer lower fixed rate cards, said John Ulzheimer, president of consumer education for Credit.com.

Inactive cards: Companies are getting tougher on inactive cards. Some are closing them down entirely, while others will begin charging monthly inactivity fees.

Since closing cards can bring down a credit score, “it might be worth it to use those cards to keep them active” and pay off the balance right away, said Woolsey.

Annual fees: Looking to make more revenue, some banks are adding annual fees to their credit cards, a practice that died down years ago when “everything got so competitive” in the industry, says Brooks.

He expects an “influx of annual fees” added as “a revenue producer” for the issuers.

Credit limits: Come February, card companies cannot charge fees if you go over your credit limit. If you do go over your limit, however, the purchase will be canceled.

Consumers have the option to opt in, allowing you to go over your limit for a fee. In addition, banks are cutting credit limits, so you may have even less spending power than you think.

Experts say the best thing to do is to keep tabs on your balance by setting up text message alerts when you get close to your limit.

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