April Financial Fitness Challenge�Play Your Cards Right

If you already use a credit card from your credit union, you might be wondering what's all the fuss about the new credit card rules; you're already using a card that operates under fair principles.

Springing from the CARD Act (Credit Card Accountability, Responsibility, and Disclosure Act of 2009) that began to be effective last year and continues to roll out new rules through late summer of 2010, the law arose from the abuses that many credit card issuers�mostly large national banks�imposed on their customers.

And if you also have one of those national bank cards, you know what those abuses were. They included bait and switch interest offers, little notice of big changes in terms, unfair and deceptive acts and practices (shortened to UDAP in legislative jargon), ever-tightening payment windows, and convoluted methods of calculating interest.

No wonder Congress (finally) called a halt.

It's worth remembering that big banks have reason to charge more for their cards�in the past, they typically were pretty cavalier about whom they allowed to have a card. They made money on fees and so had no incentive to moderate them. They simply subsidized losses by charging higher rates to everyone. It's a business model based on volume, and it dominates the credit card market.

As Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group (U.S. PIRG; Washington, D.C.) told Frontline, "...people should understand the credit card industry is a very concentrated pyramid. ... Maybe 10 companies have 90% of all credit card accounts; all credit card payments owed are owed to 10 companies. Doesn't matter that 6,000 credit unions and tiny banks might offer a credit card�these 10 companies control the business."

Credit union lenders take a totally different tack from bankers�they are careful to grant credit to people who will pay their bills. What a concept! With lower losses, there's less need to make that money up in punitive fees and policies. It's a natural consequence of the credit union difference�member owned and controlled, not-for-profit, cooperative structure.

You can bust the power of those 10 big card issuers, and make sure you get treated fairly and pay a reasonable price in the bargain, by having and using a credit union credit card.

Choose a card, manage it well

Actively manage your account. Open and examine your credit card statements promptly for announcements from the issuer. Under the new rules, you must have 45 days' notice of a change in your card's terms, such as an interest rate increase. If you decide to "opt out" of the change, you no longer will be able to add new charges to your card, and will want time to get a replacement while you pay off the old balance.
"Doesn't matter that 6,000 credit unions ... might offer a credit card�10 companies control the business."
Keep your credit score healthy. This number between 300 and 850 is a measure of your trustworthiness as a borrower. The higher your score, the easier it is to get a loan and, often, the more favorable the interest rate. The most important ways to maintain and improve your credit score is by paying all your bills on time and not taking on excessive debt. Watch your card balance-to-limit ratio. It's OK to occasionally "max out" your credit card for important purchases, as long as you can pay it off in a few months. But over the long term, try to keep your total credit card debt to a reasonable 10% to 20% of your total credit limit. If the ratio gets much above 20%, and you can handle the payments, ask for a higher limit on your current card or get another one. Don't add new cards too often, though, and don't close several unneeded accounts in a short time�either move can reduce your credit score. Understand the overlimit option. The CARD Act lets you choose what you want your card issuer to do when you try to go over your card's credit limit. If you "opt in," you can go over the limit�for a fee. If you "opt out," your attempt to go over the limit will be declined.

Financial Fitness Challenge

The people at your credit union bring you this Web site and other tools, such as credit cards, to help you make the most of your financial resources. In 2010, the Financial Fitness Challenge will continue to look at ways you can make better financial habits no matter what condition the economy is in.

And each month we'll randomly select five winners to receive $50 Visa gift cards; we'll choose each month's winners only from that month's entries, so register often. Remember to register for the Financial Fitness Challenge.

ST
Susan Tiffany, CCUFC
[email protected]

Published April 5, 2010