A new credit card comes with new responsibilities. It’s your job to use the card wisely, make payments on time and read the fine print of the contract. The unfortunate reality is that many people fail to do the latter. Here are a few things you should know about credit card contracts.
Rates Can Change
A large part of a credit card contract will concern interest rates. Many people don’t understand that most contracts give your card issuer the right to raise your interest rate — in some cases, on a whim. The interest rate on your card can go up for many reasons. These can include changes to the federal index rate or the end of a promotional rate period. Card companies can even raise your rate if negative items are discovered on your credit report during a periodic review. The credit card company can adjust its rates without any real explanation at all. The news isn’t all bad. In some cases, your credit card contract may provide for a decrease in your interest rate when certain conditions are met. Many contracts provide for lowering your rate or reviewing it after you’ve built a history with the card. Don’t be afraid to ask for a review if you have a good payment history. Remember, it also helps to keep the balance on your card low.
How Potential Loss Is Calculated
In 2016, some changes were made to the way credit card companies evaluate their projected losses. CECL compliant loss methods were adopted over older loss models. Risk management is important for any credit card issuer. With LOC calculations, they look at two loss methods: expected losses from funded (expected) and unfunded (incidental) conditions. How does this affect you as a credit card user? CECL stands for Current Expected Credit Losses. It impacts the pricing, or rate, of your credit card. This new standard of calculation was implemented following the 2007 financial crisis.
You Have Rights as a Cardholder
As a cardholder, you are protected by the Federal Consumer Credit Protection Act. Rights for consumers can be traced to 1968, and amendments made since 2008 clearly define the basic rights of a cardholder. Your credit card contract should make these rights clear.
From a fair review of your credit application to mandated rate reviews, a card issuer is bound by certain legalities. One of the most important of these is advanced notification of rate increases. Your credit card company must notify you at least 45 days before it proposes to change your interest rate. You should carefully review the cardholder rights as spelled out in your credit card contract. This will help you recognize problems that may need to be addressed.
No one likes to read the fine print. Most people sign their agreement without a second thought. Remember, the moment you sign a credit card contract and return it to the card issuer, a binding agreement is now in place. Claiming that you did not understand parts of the credit card contract will not likely help you in the event you face collections or high interest rate increases.
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