Do Your Part To Get Credit Under Control

By Michelle Singletary
Sunday, December 28, 2008

The New Year is a good time to begin new practices, especially concerning money management.

As we enter 2009, it's especially important to begin handling your credit card differently -- because in more than a year, the credit card industry must change the way it treats you. And trust me, there will be little room for you to make a mistake in how you use such credit because the industry wasn't happy about the forced changes.

The Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration approved new regulations for credit card issuers prohibiting certain "unfair acts."

Among other things, the new regulations prohibit lenders from raising interest rates on existing balances unless a payment is received late. Credit card issuers will no longer be able to charge a late fee if a statement isn't sent in a reasonable amount of time to allow a consumer to make that payment. Issuers also would not be allowed to allocate customer payments in a way that repays debts with higher interest rates last.

In an idiotic move on the government's part, the new regulations don't become effective until July 1, 2010. The government wanted to give the companies time to change their systems.

Let's see: A woman can carry and give birth to a healthy baby in nine months, but the feds can't see fit to make credit card companies change their unfair and deceptive ways for a year and a half?

Oh well, no use complaining. What's done is done. But I do want to look at a few of the new rules and what you can do in 2009 to change your charging habits.

The regulators imposed a number of rules to help consumers avoid getting hit with late fees or higher interest rates. They include:

· A ban on treating a payment as late for any purpose unless you are provided with a reasonable amount of time -- at least 21 days -- before the due date.

· The establishment of a reasonable cut-off hour for mailed payments to be considered on-time on the due date. The agencies deemed 5 p.m. to be a reasonable time of day. When mailed payments are not accepted on the due date, such as on weekends or holidays, creditors must consider your payment received on the next business day as being timely.

· A ban on the widespread practice of imposing higher interest rates on balances incurred before a rate increase went into effect, unless the cardholder is more than 30 days late in making a minimum payment.

What you can do:

· Automate your bill-paying. Absent extenuating circumstances, you'd better believe the banks are going to stick to the new rules and impose late fees whenever you falter. If you're 30 days behind, they'll pounce on the opportunity to raise your interest rate. And by the way, the banks will still be able to raise your rates on new charges if your credit profile changes for the worse.

To avoid getting hit with a late fee or a rate increase, now's the time to get used to online banking. If you have a phobia about using technology, get over it. It's not really that difficult. There's the initial set-up time, which includes entering all your information, but after that, all you have to do is download the information. Online banking allows you to set up a system in which you are alerted when your bills are due.

In another rule change, banks will have to stick to the promised fixed rate they offer. Advertisements may refer to a rate as "fixed" only if a time period is specified for which the rate is fixed, and the rate can't be increased for any reason during that time. When you open a credit card account, banks will have to disclose all of the interest rates that will apply. There's a prohibition on increases in those rates, except under certain circumstances.

· Get serious about paying off outstanding balances. Make a habit of charging only what you can pay off in the following month.

Don't hang onto debt figuring you'll be able to roll existing debt onto new cards with no or low interest. We're already seeing significant reduction in available credit. You won't see many -- if any -- zero percent interest or extremely low interest rate credit offers. Because the new regulation increases the chance that banks will actually have to honor those offers, fewer customers will get such deals.

If you haven't handled your credit card well, make it one of your financial New Year's resolutions to change. The government has offered some help, but it doesn't arrive for a while. Until then, you'd better do everything in your power to handle your credit perfectly to avoid the unfair practices still allowed.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and at http://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail: singletarym@washpost.com.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.