Credit Card Companies Get New Rules

Thanks to Obama’s signature on the Credit Card Accountability, Responsibility and Disclosure Act, your credit card company absolutely has to give you a 45 day notice before raising your interest rates. The downfall to this great news is that credit card companies will definitely be raising your interest rates before the rest of the Act goes into effect next year. For now, there is no interest rate cap. In a year, there will be.

As of August 20, your credit card company must notify you of the impending interest rate hikes, and must also give you some options. You can either pay the higher interest rate and just go with the flow. If you have a low balance on your credit card, it might not really affect your monthly payments, but it might affect your credit score if you keep a small balance on the card. Keeping the balance at around 20% could be a good thing for your credit score, if you can afford to do that.

Your credit card company must also give you the option to pay off your current balance at the current rate, before the interest rate rises to something outrageous. This might seem like a great option, considering your credit card company will probably take advantage of the no cap, but it also might affect your credit score negatively.

According to USA Today, paying off your balance at the old rate usually ends up in a closed account, and a closed account is one less account reporting positively to the credit bureaus for you. When you close your credit card account, your total available credit shrinks, which could possibly bring down your credit score because, even though you paid off the account and have no negative reports from them, you also have no positives because you now have less available credit to your name.

It’s really a catch-22, because who wants to pay the outrageous interest rates when you are responsible and making your current payments on time? But, these days who wants to affect their credit in any negative way? So, what do you do?

It depends on your balance, and if you think that you can afford to keep paying it when they raise the interest rates. You have 45 days to come to a decision, so weigh out your options and decide whether your credit is a work-in-progress and you need to keep it as active and positive as possible, or whether your credit is already steady and high and you’re just not worried about it.

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