While you might be able to negotiate better terms with your credit card company and lower your credit card interest rate, it is unlikely that lending companies will lower their interest rates as an industry endeavor. With a poor economy marked by enormous consumer debt and the stringent controls imposed by the CARD Act, lending companies are trying to protect their profit margins by either keeping the same credit card interest rates or increasing them slightly.
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Even as credit card companies seek to protect their bottom lines, the CARD Act of 2009 appears to have had a freezing effect on some of their practices. According to a report by Fox Business, credit card interest rates have not dropped but they have not been raised precipitously either.
The CARD Act: What It Does
A landmark credit card reform bill, the CARD Act or the Credit Card Accountability, Responsibility and Disclosure Act was signed into law on May 22, 2009. It was an effort to protect credit card customers from practices deemed unfair by consumer groups and the government.
The main focus of the CARD Act was to make the billing practices of the lending companies, and their agreement documents, more transparent and easier to understand.
The main focus of the Act was to control unexplained and sudden interest rate hikes. Credit card companies are now required to inform the customer at least 45 days before instituting any change to their credit card agreement, whether it is interest rate, penalty fees, or rewards structure.
Credit card interest rates have to remain fixed for the first year. In the case of teaser low interest rates, the introductory rate cannot be changed for a minimum of six months unless you miss making a payment for over 60 days. In that case, your interest rate will jump to the penalty rate, as agreed upon in your contract.
Any penalty fees on late payments were capped at $25, which could be raised to $35 if you miss two payments in six months. Credit card companies can no longer charge exorbitant fees from customers for going over the credit limit. Unless specified in your credit card agreement, consumers are not allowed to exceed established credit limits.
Impact of the CARD Act
According to a report by Pew Health Group, a branch of The Pew Charitable Trusts, the CARD Act has had a positive impact on consumers’ wallets, with three out of four American credit users surveyed indicating that their account is better protected after the passage of the law. Yet consumer groups still find missing elements in the CARD Act that provide loopholes to credit card companies.
Interest rates have held steady at 12.99%-20.99% depending on the consumers’ FICO score. Banks can no longer penalize credit card accounts with balances without giving a 45-day notification to the account holder. However, banks are increasingly offering only variable APRs to protect themselves from the vagaries of a shifting market.
Making payments on time has become easier with consumers getting their credit card bill 21-days prior to the deadline. Consumers now have a fixed date every month to pay the bill and have until 5pm of that day to pay it.
Another major change is how payments are applied to a credit card balance. Under the CARD Act, any amount above the minimum required payment has to apply towards the balance that carries the maximum interest rate.
Over-the-limit fees have reduced drastically with banks and credit card companies now requiring consumers’ permission to be charged for going over the limit. Credit card holders are now increasingly being subjected to annual fees. More than 20% of bank issued cards carry a fee of $59. Additionally, customers are also being charged at a higher rate for cash advances, foreign currency transactions, getting a paper copy of their statements, among others.
Taking Steps Toward Lower Rates
As a consumer, you have to be vigilant and proactive about the terms and conditions of your credit card agreement. There are many measures you can take to lower your credit card interest rate, irrespective of the uncertainties of the financial market.
Some of the options are:
- Build your credit score diligently. Make sure you pay your balance on time and in full, if possible.
- Consolidate your credit card debt by moving your balances onto the lowest APR card that you qualify for. This makes it easier to tackle your debt by minimizing the number of credit cards you have to keep track of.
- Do your due diligence. Scour the credit card market to get the best interest rates you can find. This will give you leverage if you plan to negotiate better terms with your present lenders.
- Make sure you pay your other debts such as car loans and mortgages on time.
Like most other things, you have to make an effort to find the perfect credit card that has a low interest rate, low fees, and great rewards structure. Obviously, this becomes a lot easier if you have great credit scores and a stable job.
Whether you have stellar credit scores, or are in the process of getting there, the FREE credit card finder might be the way to start your journey!
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