Clarifying Interest Rate Changes Allowed with the CARD Act

The CARD Act is now in place and providing important protections for credit cardholders. Consumers are saving millions of dollars through some of these provisions, such as the elimination of over the limit fees and the restrictions on interest rate hikes during the first year of an account.

Credit card companies have had to find ways to make up for this lost revenue. Many issuers have increased balance transfer fees, cash advance rates and foreign transaction fees. There are not more cards with annual fees and most every fixed rate card has been changed to a variable rate card.

Based on the 1000+ cards found in the LowCards.com Complete Credit Card Index, the average APR the week before the CARD Act was signed into law (May 2009) was 11.64%. As of last week, the average interest rate had increased over two percentage points to 13.70%.

A new study from Synovate confirms that issuers have increased rates on existing cards. According to their statistics, the average APR in the second quarter of 2010 increased to 14.7% from 13.1% a year ago. Synovate reports the average interest rate is at the highest level since 2001 despite the prime rate being at an historic low. There is now an 11.45 percentage point gap between the two rates, the largest in at least 22 years.

“Higher interest payments are hard on consumers, but it will get even worse if the Federal Reserve starts to make changes that increase the prime rate. Nearly every credit card now has a variable rate and many of those cards have the prime rate as their base. Once the prime rate rises from its historic low, consumers will see a corresponding increase in the APR of those variable rate credit cards,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

There seems to be some confusion among consumers on how the CARD Act can affect your credit card interest rates. Here is some information:

• The Card Act does not cap interest rates. Issuers can still increase your interest rates. However, competition provides its own regulatory-type influence to help anchor down rates and keep them from soaring.

• Issuers have to give a 45-day notice for rate increases unless it is a variable rate card and the card’s index (usually the prime rate or LIBOR rate) increases.

• If your credit card company does raise your interest rate, the new rate will apply only to new charges you make. If you have a balance, your old interest rate will apply to that balance.

• If your credit card’s rate has been increased since January 1, 2009, the new rules require issuers to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate. Since the beginning of last year, millions of cardholders have seen their interest rates increase. Some issuers raised rates to as high as 29.99% for cardholders with good credit. Issuers must also perform a review every six months on accounts that receive a rate increase. The review should determine if changes in key factors (such as cardholder credit risk, payment history, and market conditions) give reasons to reduce the rate.

• If your payment is 60 days past due, the issuer can raise your APR to the penalty rate (30% for some cards). If you immediately make at least your minimum payment on-time for six straight months, then your issuers needs to reevaluate your account. However, if you make another late payment during that six month period, the higher rate could apply indefinitely to new transactions.

• Issuers can still apply your minimum payment to the balance with the lowest interest rate. Due to the CARD Act provisions that went into effect this past February, the remainder of the payment has to be applied to the balance with the highest interest rate.

• Issuers can’t raise your rate during the first year of an account unless your payment is more than 60 days late, or unless it is a variable rate card and the card’s index (usually the prime rate or LIBOR rate) increases.

Here are some tips for consumers regarding their card’s interest rates:

• Shop around for a card with a low rate. Direct mail offers are increasing again. Don’t necessarily apply for the first offer you receive. Compare your offer with others found on the internet.

• Consider transferring your balance to a card with a 0% intro rate for twelve months and a lower ongoing rate. This could be beneficial if the amount of interest you save significantly outweighs the upfront balance transfer fee you will be charged. You need to do the mathematical calculations to determine if this is a financially prudent move for you.

• Pay down as much as  you can on the balance with the highest rate. Any amount above the minimum payment will be applied to the highest rate.

“Paying off your credit card debt is the only way to be unaffected by rate increases. Higher interest rates drain away money that could be used to pay off your debt, extending the time it takes to eliminate the balance. If you have a few extra dollars, make smaller payments more often. Micropayments save on the interest you pay and will help you eliminate your debt more quickly,” says Hardekopf.

Is Your Credit Card Company Upfront with its Customers?

This is a guest post by Odysseas Papadimitriou, founder and CEO of CardHub.com, an online marketplace for credit card offers.

Do you know what to look for before you apply for a credit card? If you’re not prepared ahead of time, there’s a good chance you might miss some key information on your credit card agreement. A recent study from CardHub.com found that many issuers still lack transparency on their credit card applications, despite recent regulations under the new credit card law (Credit CARD Act) meant to promote clarity in the credit industry.

The Summer 2010 Credit Card Application Study evaluated how much information could be gathered on a credit card application without reading the fine print, as this is what most consumers see before they apply for a credit card. The study evaluated the 10 largest issuers on the clarity with which they disclosed essential information such as APRs, common fees, and details on rewards programs. It was determined that the ideal application would have this information clearly displayed, without the applicant having to actively search for it.

Of the issuers evaluated, Capital One and Bank of America ranked the highest, with scores of 96.4 percent and 95.0 percent, respectively. The issuer that performed the worst in the study was U.S. Bank with a score of 59.3 percent. USAA and American Express followed with scores of 77.5 percent and 78.3 percent, respectively.

The category in which issuers performed poorly across the board was clear disclosure of the balance transfer fee. It is particularly important that this fee is clearly displayed because it less likely that a consumer would know to look for it (as opposed to knowing to look for the APRs) and it can cost the applicant a significant amount of money.

Applications were also consistently lacking in information on rewards programs for non-cash-back rewards credit cards. There was often information on how to earn rewards (e.g. one rewards point for every $1 spent), but it was often difficult to find how much rewards points and miles were actually worth (i.e. is 15,000 points worth a trip to Florida or a trip to Europe?). In order to find this information, the applicant typically had to read the fine print and in some cases navigate to an entire new section of the website.

Although clarity was lacking in some areas, there were also signs of improvement. Vague language and phrases such as ‘up to’ and ‘as low as’ were found to have diminished considerably. It was also often fairly easy to find information about the annual fee and in many cases the introductory APRs.

This improvement is encouraging, but the fact remains that in order to truly know what you’re getting into when applying for a credit card, you must carefully read the terms and conditions of your credit card agreement. If nothing else, be sure to look for the introductory and regular APRs for purchases and balance transfers, the annual or monthly fees, the balance transfer fee, and details on your rewards program. This will give you a good start for being your own financial advocate.

Additional Provisions of CARD Act Take Effect Sunday

Some of the final provisions of the CARD Act go into effect next week and these could prove very beneficial for credit card consumers. Starting August 22, new rules may result in interest rate reductions as well as limitations on some fees.

Here is a look at the three major provisions of this part of the CARD Act.

Interest Rates
If your credit card’s interest rate has been increased since January 1, 2009, the new rules require issuers to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate. Issuers must also perform a review every six months on accounts that receive a rate increase. The review should determine if changes in key factors (such as cardholder credit risk, payment history, and market conditions) give reasons to reduce the rate.

“This is the rule that could make a real difference for cardholders. Since January 2009, millions of cardholders have seen their interest rates increase. Some issuers raised rates to as high as 29.9% for cardholders with good credit. These higher rates shocked cardholders and they want their APR restored to the original rate,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “However, the catch in this is two words, ‘if appropriate.’ The final decision is left with the card issuers. Credit card issuers need revenue and they may not be eager to review and restore the original rates.”

According to the LowCards.com Weekly Credit Card Rate Report, the average advertised credit card rate was 11.68% in January 2009. Last week, that average was 13.71%.

Fees
The new rules also protect card users from unreasonable late payment and other penalty fees. They should now be assessed in a way that is fairer and less costly for consumers.

Issuers can only charge one fee for a single event or transaction that violates the cardholder agreement. The late payment fee can’t be more than $25 or more than the cardholder’s minimum payment. However, if one of the last six payments was late, issuers can charge up to $35. The fee may also be higher if the credit card company can prove that the costs it incurred due to the late payment justifies a higher fee.

Currently, the late payment fee is typically $30-$39, and the same fee is charged whether you are late with a $20 minimum payment or a $100 minimum payment.

The rule also eliminates inactivity fees. Credit card companies can no longer charge fees for not using your card.

“Issuers are already reacting to this limitation. Instead of the inactivity fee, some issuers are adding a yearly minimum. If you charge less than this minimum amount, then they charge you an annual fee,” says Hardekopf.

Gift Cards
The new rules apply to all store and merchant gift cards, as well as cards for general use, such as Visa gift cards. These rules include:

• Limits on expiration dates. The money on your gift card will be good for at least five years from the date the card is purchased. Money added or loaded on to the card must also be good for at least five years.

• Replacement cards. If your gift card expires and there is unspent money, you can request a replacement card at no charge.

• Fees. The law bans dormancy, inactivity and service fees on gift cards unless there has not been any activity for twelve months and the issuer clearly discloses all fees on the packaging. In those cases, consumers can only be charged one fee per month. Last month, Congress passed legislation to extend the effective date for the disclosure requirement until January 31, 2011, for cards issued prior to April 1, 2010.

Some states have stronger state laws for gift cards and these will remain valid. Many states do not allow fees or expiration dates. In California, a card with cash value of $10 or less may be redeemed for cash.

Financially Preparing Your Child for College

It is almost time for your high school graduate to leave for college. Talking with your son or daughter about budgets, credit cards and the dangers of debt should be part of the preparation in sending them off into a life on their own.

“Credit cards represent freedom and independence for college students, especially that first year when living away from home is new and exciting. The more they understand about the correct use of credit and its consequences, the more responsibly they can handle it,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “Money management is not a skill they should learn from their friends or by making mistakes.”

What Has Changed
As of February 22, the CARD Act began limiting credit options for students under the age of 21. While the regulations protect students from aggressive credit card marketing on campus, the law also restricts credit availability for students. If you are under 21 and want to open a credit card account, you will need to show you are financially able to make payments, or you will need a co-signer.

There are many benefits but also some potentially harmful side effects to these regulations. Parents can have more control and more influence over their students’ finances. These strict application requirements will reduce the number of college students with credit cards and credit card debt. But the law also eliminates the opportunity for responsible students to begin building a good credit score at a young age.

Before the CARD Act, it was very easy for college students to get a credit card. Issuers wanted to build brand loyalty early and if students got into debt, the parents typically bailed them out. This also gave responsible students a chance to build a good credit score while they were in college. Today, if college students can’t get a credit card while in school, it limits their ability to start building their credit score. While the credit score may not matter in college, it will matter immediately after graduation. Lenders, employers, and even apartment managers use credit scores to help make judgments about the applicant. A low or non-existent credit score could mean higher rates for loans or even a missed job opportunity.

Payment Options for Students Under 21
* Credit cards. Students under the age of 21 can get a credit card if he or she has a co-signer or has proof of the ability to make payments.

Co-signing should only be an option if your student can use a credit card responsibly. If the student makes a late payment, it also shows up on the co-signer’s credit report. If the student can’t pay off the debt, the co-signer is responsible for all the debt.

As a co-signer, you will also receive a monthly statement. Credit limits can’t be increased without your approval. It is advisable to “opt-out” for over-the-limit coverage; then, any charge that puts your account over the limit will not be accepted. This avoids costly over-the-limit fees.

Sign up for online account alerts. You can receive a text or email when a payment is due, and if there is irregular activity in the account.

“Students can also get a credit card if they have a job or can afford the payments. Credit card issuers give very little guidance in their terms and conditions about minimum income requirements or how they verify income,” says Hardekopf. “The definition of income also varies by issuer. Some include stipends, grants, and scholarships as income.”

* Debit cards. These cards are tied to checking accounts. Opt-out of overdraft coverage to avoid overdraft fees. Online account alerts can notify you when the account falls below a specified balance. Debit cards do not help build credit scores and they may not be a sufficient balance during an emergency.

* Prepaid cards. These can be purchased anywhere, even grocery stores. However, they also have fees, so read the fine print before you purchase.

* Secured cards. These cards have more fees and the interest rate in high, so pay it off each month. But secured cards are relatively easy for anyone to get before it is secured by a prepaid deposit. Make sure that the card reports to a credit agency. Secured cards from Orchard Bank and Public Savings Bank both report to credit agencies.

Credit Card Stats for College Students
According to a Sallie Mae study, 84% of college students had at least one credit card in 2009, up from 76% in 2004. The average amount of debt carried by college cardholders is $3,173 which represents a 46% increase over the 2004 figure of $2,169. The average number of cards per student is 4.6. Only 17% pay off their entire balance each month and 22% make just the minimum payment.

Even though these numbers should drop because of the CARD Act, they still show the importance of talking with your students before they get into debt. The CARD Act does not remove this responsibility from parents.

Talk With Your Student About Credit Card Debt
Parents should teach their student how to budget, spend wisely, and use credit. Start with your own credit card bill and use it to explain interest rates, grace periods, and minimum payments. Explain the high rates of cash advances and how to avoid these loans. Show them examples of how much they will pay in interest by only making the minimum payments. Tell them about the fees and penalty rates. Use online payment with reminders to help avoid late payment. Teach them to monitor their credit limit and if you must carry a balance, keep it under 30% of your credit limit.

Make it clear that credit cards are loans that have to be repaid in full each month. If you can’t afford to pay for the item with cash, then you can’t afford the item. Tell them what is a good time to use a credit card for payment (textbooks, emergencies) and what isn’t (clothing, food, entertainment).

Teach them that credit scores will be nearly as important as test scores. Show them a copy of your own credit report and use that as an example of building a good (or bad) payment history with credit cards. They can even review their credit report for free each year to check their progress at annualcreditreport.com.

Give advice on how to avoid credit card theft and what to do if your card or identity is stolen. Don’t let anyone else use your card.

Study Analyzes Changes in Credit Card Industry Since CARD Act

The CARD Act has forced credit card issuers to make a number of good changes that are already benefiting consumers, but there is still room for improvement, so says a study by the Pew Health Group.

The study released last week–”Two Steps Forward: After the Card Act, Credit Cards are Safer and More Transparent–But Challenges Remain”–analyzed and compared the credit card marketplace before and after the CARD Act. The study reviewed credit cards offered inline by the twelve largest banks and twelve largest credit unions–nearly 450 credit card offers.

Here are some of the major findings from the Pew Study:

• Rated continued to increase. Overall, purchase interest rates have increased 30% between December 2008 and March 2010. In December 2008, the median purchase APR was between 9.99% and 15.99%. In March 2010, the range was 12.99% to 20.99%.

• Penalty interest rates received the most attention and criticism in the report. The Federal Reserve rules “permit a creditor to apply an increased rate to an existing balance when an account becomes more than 60 days delinquent.” But the report said that the implementation of the changes has led the emergence of a “troubling new trend.” Some issuers such as Bank of America no longer list the amount and terms of the penalty rate in the terms and conditions. They only include a sentence in the fine print that states they reserve the right to impose a penalty fee. The report argues that this goes against regulations; cardholders are entitled to know the pricing of their account, the penalty rates that could apply, and how high those rates could be. Altogether, one in five penalty disclosures mentioned the right way to “cure” (return to the original, non-penalty interest rate). Only three of ten banks that use penalty rates mentioned the legally mandated cure periods.

• 78% of banks offered an introductory rate for purchases and/or balance transfers. The median introductory period is seven months.

• No surveyed banks offered a fixed rate on any credit card.

• Rewards are not used to penalize cardholders for late or overlimit payments. 23% of surveyed bankcards put limitations on cardholders, preventing them from collecting rewards if there is a late payment or penalty on their account. Some issuers require a reinstated fee for lost points, but this is not described in the terms and conditions.

  For example, American Express will cancel points in Delta, Jet Blue, Hilton Hotels and Starwood Hotels accounts earned for that cycle if you have a late payment fee. They can be reinstated for $29 for each month.

• As of yet, legislation did not generate an increase in new annual fees. The number of cards that charge an annual fee actually dropped 1% from July 2009 to March 2010. However, during that time, the median annual fee increased from $50 to $59 for bank cards.

• Cash advance and balance transfer fees increased on average by one-third between July 2009 and March 2010–from 3% of each transaction to 4%. At the same time, cardholders are reducing their cash advances. In 2009, cash advances dropped by more than 40%.

• Only 5% of issuers disclosed the minimum payment formula as part of the application process. Those that did require 1% of principal balance.

There were also several recommendations from the Pew Study:

• Full disclosure of penalty fees. The issuer should clearly list actions that can trigger the fee, what the fee will be, and how/when the rate will return to a non-penalty fee.

• Monitor transaction surcharges to protect against deceptive hidden costs. Rising balance transfer fees equate to higher effective rates.

• Apply total monthly payment to the balance with the highest rate.

• Penalty rate should be no more than seven percentage points above the non-penalty rate.

• Consolidate all maintenance fees, including annual access membership fees, into a single annual fee so that pricing is clear and easy to understand and compare.

• Remove mandatory binding arbitration clause.

Personal Credit Cards: Better for Your Business?

This is a guest post by Odysseas Papadimitriou, founder and CEO of CardHub.com, an online marketplace for credit card offers.

Running your own business takes energy, organization – and a whole lot of money. Using a credit card for funding a small business can provide you with the resources you need when you don’t have the cash. However, due to small business credit cards’ exclusion from protection under the Credit CARD Act, you should think twice before carrying a balance on your small business credit card.

Even though it’s called a business credit card, the business owner is still personally responsible for the debt incurred at the end of the day. Since the owner is assuming this risk already, it makes sense to use a personal credit card for purposes such as funding or any other expense that you can’t pay back right away. This way the Credit CARD Act will provide the protection you need when carrying a balance.

A personal credit card offers much more predictability and stability for someone managing a business. For instance, the credit card company cannot increase the interest rate on existing balances and cannot apply the penalty APR until you are 60 days delinquent. The Credit CARD Act also enforces a payment allocation system for personal cards that is more advantageous for the cardholder. Credit card companies such as Capital One, Chase, Bank of America, and Citibank do not have to adhere to such restrictions when it comes to business credit cards.

Don’t get me wrong, a business credit card offers its own advantages and can play an important role in financing your expenses. For example, a business owner can set individual credit limits for each employee, which makes managing and tracking expenses much more efficient. Business credit cards also often offer higher credit lines, making it a more effective spending tool when multiple people are using the same account.

These factors make business credit cards an excellent choice – even better than personal credit cards – when used as a charge card. In other words, it is my recommendation that you use a business credit card for making company purchases, but only those purchases that you plan to pay back in full at the end of each month.

When making decisions around financing your business, you should take advantage of what both business and personal credit cards have to offer. The combination of the two will give you the most purchasing power while allowing you to fund your business without being subjected to the whim of credit card companies.

Many Credit Card Issuers Not Providing Full Disclosure on Penalty Rates

Despite legislation to make credit card terms fair and easy-to-understand for consumers, the new regulations have opened the door to changes that can make cardholders “vulnerable and uninformed.”

The Pew Health Group Study (entitled “Two Steps Forward: After the Card Act, Credit Cards are Safer and More Transparent–But Challenges Remain”) released last week analyzed and compared the credit card marketplace before and after the CARD Act. The study reviewed credit cards offered online by the twelve largest banks and twelve largest credit unions–nearly 450 credit card offers.

The study shows that issuers have taken two steps forward in most areas, but also taken a step back with penalty rates. Some issuers no longer provide full disclosure of the terms of the penalty rate, or fail to correctly follow disclosure requirements required by the new Federal Reserve rules.

Before the CARD Act, credit card issuers clearly disclosed the penalty rate and the terms in the application process because this gave t hem the legal right to raise rates immediately and without notice as soon as the accounts became past due or cardholders went over their credit limit. This full disclosure was in their best interest because increasing rates generated more revenue.

After the CARD Act, the Federal Reserve added new rules for the penalty rate. While these rules benefit cardholders, they have also allowed issuers to withhold important pricing information which can leave cardholders uninformed about the complete conditions of their credit card.

Here are the new rules for applying penalty rates:

• Issuers are permitted to apply an increased rate to an existing balance when an account becomes more than 60 days delinquent. Issuers can also increase rates to the penalty rate on new transactions any time after the account has been open for one year.

• The cardholder must be given at least a 45-day notice before the rate is increased.

• According to the Federal Reserve Board rules, “the credit card issuers must disclose if the rate increase is due to the consumer’s failure to make a minimum periodic payment within 60 days from the due date for that payment. In those circumstances, the notice must state the reason for the increase and disclose that the increase will cease to apply if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase.”

• The rules also say that “the notice also must state the circumstances under which the increased rate will cease to apply to the consumer’s account or, if applicable, that the increased rate will remain in effect for a potentially indefinite time period. In addition, the notice must include a statement indicating to which balances the delinquency or default rate or penalty rate will be applied, and, if applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless a consumer fails to make a minimum periodic payment within 60 days from the due date for that payment.”

“The cardholder must make six on-time monthly payments that start at the time of the penalty, or the issuer can charge the penalty rate indefinitely,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Starting on August 22, 2010, issuers must perform a review of accounts that receive a rate increase. The review should determine if changes in key factors (such as cardholder credit risk and market conditions) give reasons to reduce the rate.

The application of these rules varies widely by credit card company. Here is the terminology used by the six major issuers when describing this penalty rate:

• Chase: If an APR is increased for any of these reasons (late payment, exceed credit limit, payment returned) the Penalty APR will apply indefinitely to future transactions. If we do not receive any Minimum Payment within 60 days of the date and time due, the Penalty APR will apply to all outstanding balances and future transactions on your Account; but if we receive six consecutive Minimum Payments when due, beginning immediately after the increase, the Penalty APR will stop being applied to transactions that occurred prior to or within 14 days after we provided you notice about the APR increase. (Penalty APR is 29.99%)

• American Express: If the Penalty APR is applied for any of these reasons (late payments, returned payments), it will apply for at least 12 billing periods in a row. It will continue to apply until after you have made timely payments, with no returned payments, for 12 billing periods in a row. (Penalty APR is 27.24%)

• Citi: If your APR is increased for either of these reasions (late payment, returned payment), the Penalty APR will no longer apply to existing balances on your account if you make the next six consecutive minimum payments when due. However, the Penalty APR may apply to new transactions indefinitely. (Penalty APR is up to 29.99%)

• Discover: If your APRs for new transactions are increased for a late payment, the Penalty APRs may apply indefinitely.

  (Editor’s Note: Discover seems to have the most reasonable penalty rate; it is five percentage points above the non-penalty rate. The Penalty APR is between 16.99% and 25.99% based on your creditworthiness and other factors.)

• Capital One: If APRs are increased for a payment that is more than 60 days late, the Penalty APR will apply indefinitely unless you make the next six consecutive minimum payments on time following the rate increase. (Penalty APR is 29.4%)

• Bank of America: If this account becomes 60 days or more past due, we may amend the terms of the Agreement to increase all interest rates, including interest rates on existing promotional rate balances.

According to the Pew report, altogether one in five penalty disclosures mentioned the right way to “cure” (return to the original, non-penalty interest rate). Only three of ten banks that use penalty rates mentioned the legally mandated cure periods.

The Pew report points out that some issuers (Bank of America) no longer provide the rate or terms for the penalty fee, only including a sentence in the fine print that states they reserve the right to impose a penalty fee. The report argues that this undermines regulations. Cardholders are entitled to know the pricing of their account, the penalty rates that could apply, and how high those rates could be.

The Pew Health Group recommends that the Federal Reserve bank regulators should ensure full and reliable disclosure of credit card penalty rates because “full disclosure is critical to the success of this policy.” Regulators should also enforce the existing rules in Regulation Z to make sure the penalty rate and the terms are disclosed in advance.

It also suggests that he penalty rate should be no higher than 7% of the regular rate.

Millions of American’s Credit Scores Hit Troubling New Lows

Over 25% of American consumers (approximately 43.4 million) have credit scores of 599 and below. It is no secret that consumed have relied heavily on debt throughout the past few years, but because of the slow economic recovery and the new regulations being put on credit card issuers after the CARD Act went into effect, these 43.4 million people will now have more trouble than ever getting credit cards, auto loans or mortgages under the tighter lending standards.

The figures proving these new statistics came from FICO, Inc. whose recent analysis is based on consumer credit reports from April up to recently. What is deeply troubling about FICO’s findings is that historically, 25.5 million people fell below the 599 credit score and more are likely to join those in their lowest credit score categories.

On a mildly positive note, the number of people who have a top credit score of 800 or above has increased recently. This can only be attributed to people who have cut spending and paid down debt after consolidating and adjusting to the waves of the recession. There are currently 17.9& of Americans with a credit score of 800 or above.

Now is the best time to begin paying off debt, saving money and doing whatever you can to raise your credit score. Because of the new lending standards being applied by banks, you may not be getting much wiggle room in the world of credit for quite a while.

Credit Card Changes in the First Half of 2010

2009 was a difficult year for many credit card customers. Interest rates increased significantly, credit limits were slashed for millions of cardholders, issuers closed risky accounts and rewards were decreased. Many consumers wondered what would happen after the CARD Act and other regulations went into effect in 2010. Would these regulations really help consumers?

“Despite regulations, credit card issuers are still increasing rates and fees in 2010, but less dramatically than last year,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Here are some of the changes that banks and credit card issuers have made during the first half of 2010.

Rate Increases
Compared to 2009, this has been a slow year for rate increases. Issuers increased rates dramatically in 2009 while it was still easy to raise rates, and most issuers have not made wide-ranging rate increases since then. But rates have continued to increase during 2010. Here are some recent changes:

• Capital One increased the rate on its Classic Platinum credit card from 16.9% to 19.8% and on the No Hassle Cash Rewards card from 17.9% to 19.8%.

• Citi increased its Cash Advance APR from 21.99% to 25.24%. (February 2010)

Overall, rates are still rising. Based on the 1000+ cards in the LowCards.com Complete Credit Card Index, the average advertised APR for credit cards this week is 13.64%. Six months ago, the average was 13.25%. One year ago, the average was 12.10%.

Higher Fees

• Discover increased the cash advance fee from 3% with a $5 minimum to 5% with a $10 minimum. (January 2010)

• Bank of America added an annual fee for a limited group of cardholders that started in February. The fee ranges from $29 to $99 and is applied to the selected accounts based on risk and profitability.

• Citi increased its balance transfer fee from 3% to 4%. (June 2010) It also increased the cash advance fee increased from 3% to 5% with a minimum fee of $10.

• Citi added a $60 annual fee to some credit card accounts, effective April 1, 2010. Make $2,400 in purchases each year and the annual fee will be credited back to your account.

Banks are already preparing new fees on basic banking services as they try to replace revenue lost to recent regulatory rules. HSBC and Wells Fargo ended their free checking accounts. Bank of America is testing account fees and options that will be added later this year. Other banks could join in.

Some Niche Cards and Popular Offers are Discontinued

• Credit card issuers have discontinued some of the specialized cards that were targeted to consumers during a time of free-flowing credit. Chase closed the Starbucks Duetto Visa and credit card deals with Avon Products, Inc., The Detroit Pistons, The Orlando Magic and the New Jersey Devils.

• Bank of America also reduced the number of niche cards. The Wall Street Journal reported that Bank of America currently has about 4,400 affinity cards, down from 5,000. These are typically offered through college alumni associations and charities.

• The Wall Street Journal also reported that Chase now has about 110 co-branded credit cards, down from more than 200. Issuers seem to be eliminating these cards to cut costs and reduce their risk of delinquencies by card holders.

• Charles Schwab no longer accepts new applications for its acclaimed cash rebate credit card that was recommended by many consumer advocates and financial writers. The rebate was 2%, one of the most generous cash rebates available, and it was deposited into a brokerage account.

• The National Football League is moving its branded credit card business from Bank of America to British banker Barclays. This is forcing customers to scramble to spend reward points before they expire next month. They will have to apply for the new card to continue earning NFL rewards.

Expanding Introductory Offers
Some credit card issuers are increasing intro offers back to 12 and even 18 months. This is a sign that issuers are competing again for new customers. Until recently, issuers had slashed some intro rates periods to only three or six months, depending on the credit score.

• For some applicants, Discover increased the intro period for balance transfer increases from 12 months to 15 months for Discover More. (July 2010)

• Citi expanded the intro period to 18 months for all balance transfers to Citi Platinum Select. It was previously a tier of 18, 12, or 7 months.

• Iberia Bank Visa Select Card expanded the intro rate on purchases to 0% for 12 months (formerly 7.5% for 12 months). It lowered the intro rate to 1.99% for balance transfers during the first 12 billing cycles (formerly 7.5% for 12 months).

New Offers and Targeted Incentives to Encourage Spending

• Chase and Continental Airlines launched the new Continental Airlines OnePass Plus Card and added new features and benefits to the existing Continental Airlines Presidential Plus Card.

• Chase revised Freedom Rewards. It now offers a 5% cash-back rotating rewards promotion on its Chase Freedom card. However, it requires cardholders to register every three months in order to continue earning that level of cash back on spending categories that change every three months.

• Delta and Continental now waive checked bag fees for at least one bag if the ticket is purchased with their affiliated credit card.

• American Express offers selected cardholders a $30 statement credit for shopping at six of the designated retailers by August 30, 2010.

More Credit Card Offers in the Mail

During the first quarter of 2010, US households received 481.3 million credit card offers, a 29% increase from the 372.4 million offers mailed during the same period a year ago, according to the latest study by Synovate Mail Monitor. Some credit card issuers, such as Capital One and HSBC, more than doubled their mail offers during this quarter versus the prior quarter.

The study also showed direct mail offers are also becoming more widespread for soliciting new debt as more issuers offer attractive introductory interest rates. 65% of the total offers mailed in the first quarter had an introductory purchase APR compared to just 58% in the final quarter of 2009.

Consumers with good or excellent credit scores seem to be receiving the majority of these direct mail pieces.

“The consumers with above average credit scores are the ones that most every issuer wants,” says Hardekopf. “They pose less risk.”

What You Should Know About Your Credit Card Payments

This is a guest post by Odysseas Papadimitriou, founder and CEO of CardHub.com, an online marketplace for credit card offers.

You might not be making as much progress as you think when you send in your credit card payment each month. While every payment helps, what you don’t know about payment allocation could be costing you money.

The Credit CARD Act, effective February of this year, addressed many of the issues that allowed credit card companies to take advantage of their customers. However, it left a loophole in payment allocation – the way your payments are applied to your credit card balance each month – that still leaves some wiggle room for the credit card companies.

Unfair payment allocation affects you if you carry balances with different APRs on the same credit card (e.g. a balance from new purchases and a balance from a balance transfer). Before the CARD Act, credit card companies used your payments to pay down your balance with the lowest APR first. Paying off the lowest APR balance first is advantageous for the credit card companies because it allows them to ‘trap’ the balance with the highest APR and continue to charge you the most interest for the longest period of time.

Unfortunately, not much has changed in this area. The CARD Act addressed the problems with payment allocation by stating that credit card companies have to apply your credit card payments above the minimum to the highest APR balance first.

While this is an improvement, the phrase “above the minimum” ensures that a portion of everyone’s credit card payment is applied in an unfair manner. In addition, 29 percent of Americans have only been able to pay the minimum in the past 12 months, according to a FINRA national survey. For this segment of consumers – the people who need the most help in paying down their debt – there is absolutely no benefit.

Unless you pay well above the minimum payment each month, you essentially have to treat the rules regarding payment allocation as though nothing has changed. Therefore, in order to pay down your most expensive debt as fast as possible, it is important to avoid mixing and matching your balances on one credit card. This is the only way to ensure that you have full control over how you pay down your debt.

Take this example: let’s say you open a credit card account and decide to transfer a balance of $10,000 onto that card because it offers a zero percent APR on balance transfers. Then let’s say you use that same card to make $1,000 worth of new purchases. The interest rate for new purchases on your credit card is 15 percent.

If you are only paying the minimum each month, the credit card company will apply your payments to the balance with the lowest APR first – in this case the $10,000 in balance transfer debt. You will not be able to pay down the $1,000 of debt charging you 15 percent interest until you have paid off the $10,000 of balance transfer debt in its entirety. In order to control how your payments are applied, in this example, you should have one credit card for the $10,000 of balance transfer debt and a separate credit card to make new purchases.

The new rules from the CARD Act have made big strides regarding credit card companies’ openness with their customers and provided guards against unfair interest rate hikes and fees. These changes are good for you, but have undoubtedly taken a bite out of credit card companies’ profits. Taking advantage of the payment allocation loophole is a way in which credit card companies can try to make up for lost revenue, so you should be aware of it and take steps to avoid this pitfall.