New rules for credit cards

Created date

July 19th, 2010

Whether you ve got a perfect FICO score or you re working to rebuild a spotty credit history, the new credit card legislation that took effect earlier this year impacts everyone. Here s what you need to know to protect your credit and help your children and grandchildren keep their records clean as well.

Read the fine print

Several of the new measures are designed to protect consumers and make lending terms more transparent. For example, unless you specifically request over-limit protection, purchases will be declined if they exceed your credit limit. That could mean a moment of embarrassment at the cash register, but you ll avoid costly over-limit fees. Credit card companies are now required to send statements 21 days before payments are due, and they must give you 45 days notice before changing your interest rate.

Reality check

We all know interest adds up, but for the average consumer, it can be difficult to grasp just how long you ll be paying for that sweater from the sale rack or those airline tickets if you put them on your credit card. Thanks to the new laws, if you look at your most recent statement, you ll see a section showing exactly how long it will take to pay off your balance if you make only minimum payments each month. Sharon Lechter, author of Rich Dad, Poor Dad and Three Feet from Gold, says seeing in black and white how long you ll be paying off that credit card balance can be a reality check and a good motivator to get yourself out of debt. Lechter advises people to find creative ways to make extra money, such as a garage sale, and use those funds to pay down card balances. One weekend of effort can eliminate years of debt, she says.

To co-sign or not to co-sign?

Credit card companies have historically preyed on uninformed young adults by setting up booths on college campuses. They enticed cash-hungry co-eds to sign up for credit cards by offering small gifts like T-shirts or Frisbees. Those days are over credit card companies can no longer use giveaways to attract borrowers, and people under age 21 must now have a co-signer to open a credit card account. How does this impact you? Scott Gamm, personal finance expert and founder, says many grandparents may now find themselves in the awkward position of having grandchildren asking them to co-sign on their first credit card. You may want to help, but Gamm says co-signing is a big financial risk. If a grandchild doesn t pay, you are 100% liable for any debt on that card, he says. And since statements are sent to the primary cardholder rather than the co-signer, you may not discover late payments until your own credit score is already damaged. Instead of co-signing, advise young adults in your life to get a secured credit card, which requires a cash deposit as collateral, Gamm says. After a year of prompt payments, companies will usually offer a traditional credit card. That way, you ve protected your own credit and taught your grandchildren about responsible money management.