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What credit card holders should know

WASHINGTON (Reuters) - Many in Congress have been busy patting themselves on the back for passing the Credit Card Accountability, Responsibility and Disclosure Act, which they say created a “bill of rights” for credit card holders. But there’s another way to look at the legislation.

An employee (L) of Kyobo bookstore returns a credit card and a receipt to a customer in Seoul February 5, 2009. REUTERS/Jo Yong-Hak

What lawmakers really did, besides codify a bunch of regulations that were already set to go into effect in mid-2010, was declare an open season on consumers. It should last nine months, until the new law becomes effective at the end of February, 2010.

At that time, credit card issuers will face restrictions on how and when they will be able to raise interest rates. So, starting about a year ago, issuers began raising their interest rates preemptively. Don’t expect that to change soon.

There are a number of other problematic credit card practices that could get worse before they get better. Here’s how to protect yourself and make the most of your plastic over the next year.

-- Read everything as carefully as possible. The biggest complaint about card issuers is that they have been retroactively raising interest rates on existing balances. For now, they are only required to give you a 15-day notice of a rate increase, and then you have to take affirmative action to close the account or the new rate will be applied to your old balance. Other new charges and procedures -- like increased monthly minimum payments - may be included in your statement or in separate mailings, so make sure you check all the small print.

-- Keep your credit flowing. Card issuers are cutting credit limits on many consumers, even those with good payment histories and high credit scores. In some cases, they are chasing balances down: As you pay off your balance, the card’s limit comes down with it. And issuers are not required to notify you at all when they lower your limit, so check it on your bill every month lest you run over it and get hit with a pricey over-limit fee.

If you’ve been losing borrowing power you might need, consider making minimum only payments on your credit card while you build some savings with the rest of your cash. If your credit score is good, and you only have one credit card, try to get a second one, just so you can have other options. If you have credit cards you’re not using at all, use them every month, even if it’s just to make one automatic payment like your cell phone bill. That will often prevent the card issuer from closing your account.

-- Resist annual fees. Roughly one of every four credit card solicitations sent in the first quarter of 2009 were for cards with annual fees, according to a new study by Synovate, a direct mail research firm. Card issuers and their observers contend that when the new law goes into effect, they won’t have any choice but to increase their annual fees, especially for customers who pay their balances in full every month. But don’t bet on it. Card issuers still will make big money on the payments they receive from merchants for every transaction. And there are enough issuers so that the field will remain competitive. The fee-based model won’t be your only choice for a long time.

-- Keep up with your rewards and rebates. Those generous rewards programs are likely to become more anemic. Make sure you cash in your rewards as soon as they accumulate, the programs may end and the rewards points expire.

-- If you’re a small business borrower, watch your back. Both the new law and the regulations which go into effect next July exempt small business cards. So even after next year, you could see the worst of credit card practices, such as retroactive rate increases, double-cycle billing (when you still get charged interest for the balance you paid off a month ago), and declining credit limits, may still show up on your account.

editing by Gunna Dickson

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