The financial crisis of 2007-2009 changed the world of consumer credit forever. So what will 2010 bring to the credit industry? To sum it up it one word—reform.
In fact, the CARD Act of 2009, which took effect on February 22, will bring more regulatory reform to the credit card industry than we've ever seen. Therefore, managing your credit through this period of significant change will likely require some extra effort and vigilance on your part as well. Are you up to the challenge?
If so, here are five tips to help protect your credit score from taking an unexpected turn for the worse in 2010.
1. Don't Ignore Credit Card Mail
You can expect to see an increased amount of communication from your credit issuers over the next few months. Failing to open, read, and understand that communication could lead to missing out on a small window of opportunity to make important decisions regarding your accounts.
Yes, credit card mail can be painfully boring to read, but it sure beats paying higher interest rates and unexpected fees to your credit issuers. So do yourself a big favor—read that credit card mail!
2. Keep Important Accounts Active
You're probably not too worried about Macy's unexpectedly closing your old retail card with a whopping $250 credit limit. But what about your oldest credit card or the one with your highest credit limit? They're the last accounts you want to see unexpectedly closed.
Unfortunately, in an effort to reduce risk and improve profit margins, it's becoming more common for credit issuers to shut down inactive accounts or charge monthly inactivity fees to those who don't use their cards often enough. So, to ensure your most important credit cards stay active and fee free, try setting them up to auto-pay monthly bills or simply using them to make small purchases every few months that you can immediately pay off.
3. Be Cautious When Opting In or Opting Out
One of the major provisions of the CARD Act is that banks will no longer be able to charge over-the-limit fees unless customers choose to make purchases in excess of their credit limits. If you haven't already received a notification regarding this change, you will soon. And when you do, be sure to opt out of opting in. Wouldn't you rather have a charge declined than pay a ridiculous over-the-limit fee?
In addition, a sudden interest rate hike or other major change to your account may ignite the fire within and cause you to want to kick your credit card company to the curb. However, before you opt out of a change in terms and close your account, make sure you're prepared for the sudden hit your credit score might take. Closing accounts can really hurt your credit utilization ratio and length of credit history, both of which account for a significant portion of your credit score.
4. Never Carry a Balance
Get rid of those balances once and for all, and make your credit cards work for you in 2010. If you live within your means and only charge what you can afford to pay off each month, then you will never become a slave to interest-rate hikes or unaffordable increases in minimum payments.
It may still be annoying to have your account's terms changed for the worse, but it won't cause you any financial hardship or sleepless nights.
5. Check Credit Reports and Scores Quarterly
Checking your credit reports and scores once a year may have been sufficient in the past, but if there's any year in which you should be more vigilant about checking the status of your credit, 2010 is it.
First, visit Annualcreditreport.com to pull a free credit report from each of the three major credit bureaus throughout the year. And when you would like to check the current status of your credit score, head to MyFico to purchase your real FICO scores. You know, the ones lenders actually use to make decisions regarding your credit worthiness.
Of course, there are plenty of other sites that will help you get an estimate of what your real FICO scores are for free. Creditkarma.com and Quizzle.com are both worth taking some time to check out.
