3 Questions About Credit Card Reform

In May 2009, President Barack Obama signed a massive reform bill into law known as the Credit Card Accountability, Responsibility and Disclosure of 2009, or Credit CARD Act. The provisions rolled out in three major stages and, among other changes, affected issuers' ability to hike rates on existing balances and issue cards to young consumers.

Readers were bound to have questions about such a complicated law. Bankrate.com compiled three of the most frequently asked questions about the CARD Act from its Credit Card Adviser column. Questions and answers were edited slightly for length.

Do Issuers Have to Lower Raised Rates?

I got hit with the universal default clause on some credit cards a few years ago when I ran into a financial bind. Based on the new rules that took effect Aug. 22, it looks like they will be forced to review my accounts. My question is, what is the criteria on how much my rate should decrease based on my good recent payment history? Is there specific criteria in the bill that lays out if rate is x, and payment history is y, then new rate is z?

An additional concern is that I've read that the review applies to rates increased after January 2009. My problem is that my rates increased in 2008. Does that mean they don't have to lower my rates, even if I haven't been late or over my limit for more than 18 months?

The provision you're referring to in the CARD Act does require issuers to review rate increases every six months to determine whether the APR should be lowered. As you mentioned, however, it only applies to rate increases that took place on or after Jan. 1, 2009. Your rate hikes are not covered.

The law doesn't require issuers to decrease the rate by a specific amount if a review of the factors indicates that a rate reduction is necessary. In general, the issuer can either examine the factors it based the rate increase on, or the factors it currently looks at to determine the APR that new customers receive. If the review shows that the reasons for the rate increase have improved, then the issuer must lower your rate within 45 days after completing the evaluation.

Can My Rate Increase After one Delinquency?

What I would like to know is: Can a creditor raise your APR for being only 30 days late? Many articles say it can't until you are 60 days late, but others say that it can when you are 30.

An issuer cannot raise the interest rate on an existing balance if the cardholder is just 30 days late with a payment. The CARD Act prevents credit card issuers from hiking the interest rate on an existing debt except in four circumstances. One of those exceptions is if the payment is 60 days past due.

If you are 30 days late on your payment, the rate on your balance won't increase, but you may face a late fee and a strike on your credit report in the form of a notation indicating delinquency. The reporting of a single 30-day missed payment can cause a high credit score to plummet.

Now, what your credit card issuer can do instead is raise your interest rate on new purchases. The issuer needs only to provide 45 days' advance notice of the increase. Make sure to open your mail promptly to stay informed of any changes to your account.

Can I get credit under 21?

As an 18-year-old, I can't get a credit card until I'm 21 under the new Credit CARD Act. Are there options for me to build my credit score now? Can I get a secured card without a co-signer?

The CARD Act does make it harder to build credit when you're between the ages of 18 and 21. It requires an underage applicant to have an "independent means of repaying any obligations," or the signature of a co-signer who is at least 21 years old and has the ability to repay any debt.

You may be able to get a secured card under 21, but the requirements of the CARD Act still apply.

At Bank of America, for example, you might be able to qualify for one without a co-signer. Spokeswoman Betty Riess wrote in an email: "We do offer a secured card and the same rules apply to young adults under 21 that we have on the unsecured card. If the adult applicant meets the ability-to-pay criteria, they will not require a co-signer. If the applicant does not meet that criteria, we would require a co-signer."

In January 2010, the Federal Reserve Board issued a rule with more specific guidelines on this topic. Issuers must review the consumer's income or assets and current debt obligations using "information" from the person's credit report. The issuer must consider the ratio of debt obligations to assets, the debt-to-income ratio or the income the consumer would have after paying the debts. Issuers can estimate income or assets using "statistically sound" models.

You could also build credit by becoming an authorized user on a parent's existing account. There are pros and cons to this strategy, though. Late payments on the account will affect your personal score and your parent's. A high balance-to-limit ratio could also hurt both scores.