Important credit card rate change notices disguised as junk mail

junk mailCredit card companies are racing against time and sending out a flurry of mail, hoping to implement last-minute changes before the February 2010 deadline when the CARD Act takes effect and credit card companies must play by the new rules set by Congress. Ignore the mailings and these changes could cost you hundreds, or possibly thousands, of dollars.

If you don't want that to happen to you, you must act and opt out of these changes to avoid the new costs. Of course, before you can do that, you have to first open and read the mail.

So even if the letter you're receiving from a credit card company looks like junk mail and the print is so tiny you can barely read it, take the time to tear it open and read it. You'll also likely find these mailings written in hard-to-understand legalese. Banks only feel the need to follow the law -- they don't really believe they have any obligation to carefully explain what these changes will mean.

Here are some key changes you must watch for in these mailings:

Interest rate or annual fee changes
Almost every credit card issuer raised rates this year or changed fixed-rate cards to variable rates. The most dramatic increase in 2009 occurred when Citigroup raised the rates on cards belonging to its good customers to 29.99%.

The good news is, you can opt out of these changes before they go into effect. As soon as you receive the notice call your credit card company and tell them you want to opt out of the change - whether it's an interest rate increase, new annual fees or other change you find objectionable. But if you don't bother reading your mail and opting out, you'll likely find out about the change when it shows up on your next credit card bill -- at that point, it's too late to take action.

If you do opt out, your account will most likely be closed, but at least you'll be able to pay off the card at your current interest rate rather than the new, higher rate the credit card company wants to impose. This can save you hundreds of dollars in interest fees each year if you're carrying a balance. But do expect to see your credit rating take a hit, at least temporarily. If you're paying down credit and not applying for new credit by the time you pay down your debt, your credit rating will have recovered, so don't worry about the temporary hit to your credit score. With lower debt, your credit score will go back up and then you can apply for new credit, if you want it.

Lowering your credit limit
Banks have been lowering their customers' credit limits, giving them a better chance to charge fees and penalties if consumers exceed their limit. Some consumers don't even know their limit's been changed until they try to purchase something and get hit with an overlimit charge, which could be as high as $39 per charge.

Beginning in February 2010, you'll need to "opt in" to the "convenience" of allowing you to exceed your credit limit. These opt-in mailings will likely start showing up on your doorstep between now and February. You may also get phone calls or e-mails encouraging you to opt in. Don't do it, but do realize that if you don't opt in, your credit card will be rejected if you're over your allowable limit. Overall, you're better off rejecting the "overlimit convenience." It will force you to get into the practice of monitoring your credit balances online. You can also set up an alert from your credit card company to warn you when you get within a certain dollar amount of your credit limit. For example, if you have a $3,000 limit, you could request to get a warning at $2,500 so you know to be careful about future charges. Go to your credit card company's website, and sign up for these alerts right away.

Overdrafts on your debit card
Changes to these rules won't take effect until the summer of 2010, so until that time, watch your checking account balances very carefully if you use debit cards. Many banks will charge you up to five or 10 overdraft fees per day of $35 (or more) each time you overdraw your checking account with debit card charges.

Beginning this summer, you'll have to opt in to allow the bank to charge these overdraft fees on debit transactions. Overdraft fees on checks or electronic transfers will still be automatic. There will be no required "opt in" for those fees. Expect banks to begin marketing their overdraft protection programs to get you to opt in, but avoid the hype. Instead consider linking your checking account to a savings account for overdraft protection. Overdraft fees can be $35 per transaction, but if you use a savings account, the fee is only about $10 to transfer money into checking from savings to cover that overdraft.

Remember, most of these "opt in" mailings or mailings about credit card changes, such as higher interest rates or lower credit limits, look like junk mail. Often they don't even have a return address identifying that it's coming from your credit card company. I know I tend to throw this type of mail out automatically. But don't do it. Take the few seconds you need to read the mail, make sure it's not about changes to your credit card accounts, and then toss it if it's truly junk.

Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Improving Your Credit Score."
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