5 CARD Act gains

Many consumers have never heard of the law that brought about recent changes in credit card disclosures, offers and industry practices. In fact, just half of credit card holders report awareness of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, according to a 2011 survey from Synovate, a global market research firm.

Though the law rolled out in three main phases, the biggest round of provisions took effect on Feb. 22, 2010.

Here are five rights or protections consumers:
1)In the past, if you missed one payment to another creditor, your credit card issuer could jack the interest rate on your balance. The CARD Act banned this practice of "universal default" on existing balances. That is, issuers cannot increase the interest rate on existing credit card debt. There are four exceptions to this rule, however.

The law permits a rate increase on a balance if your payment is 60 days or more past due; if your account has a variable interest rate and the rate hike is due to index movement; if the increase is due to the expiration of a promotional interest rate; or if a workout agreement has ended. Rate hikes on existing debt for other reasons aren't allowed.

However, the issuer can raise the annual percentage rate on new charges after the first year following account opening, but must provide 45 days' advance notice of the change.

2)Before the law took effect, issuers could impose $39 late fees for past due payments regardless of the minimum payment amount. The Credit CARD Act changed this practice by requiring that penalty fees be "reasonable and proportional to the violation of the account terms." The Federal Reserve set safe harbor caps of $25 for the first violation and $35 for a repeat offense within six billing cycles. To go higher than those amounts, the issuer would have to prove that the costs it incurs as a result of the violation justifies a higher fee.

In addition, the penalty fee cannot exceed the dollar amount associated with the violation. For example, if the minimum required payment of $20 isn't paid on time, the issuer cannot charge a late fee of more than $20. Issuers can only charge a consumer one penalty fee for a single violation in a billing cycle.

3) If you had balances with different interest rates, it used to be the case that your issuer could apply your payment to your balances in whatever order it wished. So, if you had a balance transfer debt at a low introductory rate and a purchase debt at a higher rate, the issuer could apply your payment to the balance transfer debt first to maximize interest charges.

The new payment allocation rule in the CARD Act requires issuers to apply any payment above the minimum to the balance with the highest interest rate first, then to the balance with the next highest rate and so on until the payment is exhausted. To take advantage of this provision, you have to pay more than the minimum amount due.

4) The CARD Act permits card issuers to raise your interest rate if your account becomes 60 days delinquent. Yet the law includes a reward for good behavior. Pay your bill on time for the next six billing cycles and the rate increase must be terminated.

5) No longer can card issuers change the due date for payments from one month to the next or set an arbitrary cutoff time on the due date. The CARD Act requires that the due date be the same date each month, and the cutoff time be no earlier than 5 p.m the day the payment is due. In addition, issuers cannot treat a late payment as such unless it delivered the billing statement to the customer 21 days in advance of the due date.

Fix your credit before seeking the car loan

Experts say the credit crunch is loosening. But to get the best interest rate on your car loan, your credit score needs to be as high as possible. These days only about 10 percent of applicants qualify for the zero- or low-interest promotions offered by manufacturers.

Here are three questions to ask before you fill out your first credit application for a new car.
What's your ratio of debt to the credit you've been extended? About a third of your credit score is based on the ratio of what you owe to the credit limits you've been extended on your credit cards. To get the best credit score, you want your ratio to be no higher than 20 percent, and ideally, closer to 10 percent. In other words, if you have $20,000 in credit extended to you, you want to owe no more than $4,000. Your overall ratio and the ratios per card are assessed, so you can improve this ratio by spreading your debt out over more credit cards and applying for an additional card (which will cause your score to drop initially, but will rebound shortly).

Have you made a payment more than 30 days late? Another third of your credit score is based on how timely you are with making payments. Lenders won't report late payments to the credit bureaus unless they are at least 30 days late. If it is reported, it could lower a high credit score by as much as 100 points. If you must complete a car loan application with a missed payment on record and you don't have a history of late payments, you can call the company and ask if they'll make an adjustment to their report, but don't count on them to say yes.

How long is your credit history? Credit history makes up about 15 percent of the overall credit score. The more years you can show that you have been responsible in managing your credit, the better your credit score. As a result, it's best to keep your oldest credit accounts active, even if you use them only minimally, since closing them will affect your credit score negatively. If you are someone who has a short credit history, then you may get a better car loan rate in a few years, though remember that the credit ratio and timeliness of payments make up about two-thirds of your overall credit score.

Once you know the answers to the above questions, order your credit report from each of the three reporting bureaus. Everyone is entitled to a free credit report from each bureau annually from AnnualCreditReport.com, but these don't contain credit scores.

Go over the reports carefully, making sure it's 100 percent accurate. Follow the instructions that accompany the credit report to correct any errors, especially ones that relate to late payments, credit limits and balances carried and length of time each account has been open, as these are the items that have the greatest impact on your credit score and your car loan. After checking your free credit report for errors, buying one report with a credit score is a good idea.