The new CARD act that recently went into effect makes a number of changes to the credit landscape. Some of these changes are meant to be good for consumers (and their credit scores), although there are those that wonder whether the changes will have unintended negative consequences. Time will tell the tale, of course.
Late Fee Changes
As you know, there are plenty of penalties for paying late. When you make late payments your credit score drops. In fact, more than a third of your FICO credit score is made up simply of your payment history. That means even one late payment to one company can lower your overall credit score, once that payment is reported to the credit bureaus.
There are other problems with paying late, too. Many creditors will charge you a late fee, usually of $30 or more, for making a payment even a few days late.
The big change, however, will take place in the area of late fees and interest rates. As it turns out, credit card companies could previously raise your interest rates when you made a late payment. This is all spelled out in the credit card agreement you signed when you applied for the card.
Now, however, banks that want to raise that rate will be required to notify you. Not only are they required to notify you, but they are required to do it before they actually raise the rates.
Minimum Payments and the Payoff
One thing that doesn’t impact your credit score as much as your budget from this legislation is the way that credit cards tell you how much you should pay each month. They’re now required to show you how long it will take to pay off the balance on your credit card using the minimum monthly payment.
This will help put it all in perspective, at least for some folks. Finding out that it will take 7 years and $3,000 in interest to pay off $3,500 in credit card debt may make some folks decide to pay more on their monthly payment. This will also help reduce their credit to debt ratio, another important factor in their credit score.