CNNMoney.com has an interesting article detailing ways consumers can protect themselves against potential credit card backlash stemming from the new rules for credit card companies.
They list six ways you can guard against some pitfalls caused by the new legislation.
Here are two straight from the article:
Chances are, you favor a particular card. But if you've got another idling in your wallet, now's the time to show it some love. To limit risk and expenses, "a lot of issuers are closing accounts because of inactivity," says John Ulzheimer of Credit.com. And they're doing so even to model cardholders.
Obviously, having a card canceled hampers your access to credit. But having less credit can also mean a lower credit score. Bad news all around.
To avoid this scenario, use each card at least once every three to six months. Just buy something small and pay it off. (Issuers will be placated by the fees they get from retailers when you swipe.) If you have more than two cards -- in reality, that's all you need -- rotate them, using only two in any given month.
Not only are creditors canceling cards you don't use, they're also cutting limits on the ones you do. Banking analyst Meredith Whitney expects lenders to reduce available credit by $2.7 trillion through 2010, and a recent Credit.com survey concluded that 14% of Americans have already been victims.
Issuers have been targeting customers based on, among other things, location, spending pattern, and debt-to-credit ratio. This last one -- which refers to how much of your available credit you're using -- is easy to manage. You'll especially want to keep it in check to avoid a vicious cycle: A high ratio results in a lowered credit score, which also triggers credit line cuts.
"Ideally you'd use less than 10% of your limit," says Ulzheimer. That's stingy -- $500 on a $5,000 line. But you can safely creep up to 20% on any one card and in total unless you're applying for a loan soon and want as pristine a profile as possible. (In that case, zero out your cards and put them on ice for two months.) Don't go over the 20% line even if you pay in full every month. Issuers report the statement balance to the bureaus, so it looks as if you're utilizing that amount.
And if your limit is cut anyway? Banks haven't been receptive lately to consumers' requests for line reinstatements. So instead, open a new card (see the next point) to extend your available credit.
For the full list, click
here.
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