Beware of Credit Card Changes 2

As I discussed last week, Credit Card Companies are blind siding us with changes that only benefit their pockets.

Minimum payments
You might have to start paying more each month.
Chase increased the minimum payment from 2% to 5% for cardholders with large balances.

Credit limits
Many card issuers are slashing credit limits despite your credit/pay history.
American Express has taken the most heat over slashing credit limits. Nearly half of its portfolio underwent a major overhaul that included cutting limits by 50% or more. Other issuers have cut limits, too, sometimes to amounts lower than the balances owed, triggering over-the-limit fees on a few accounts.
Lowering credit limits also can cause immediate damage to the credit scores of consumers who carry balances.

Rewards
Rewards programs have become less rewarding. Be sure to carefully review any "rewards programs" you are enrolled in.
What's behind the upheaval?
Why so many changes? Why now? Especially after the federal government has pumped billions into struggling banks to help bolster lending?

Consider these reasons:

A perfect storm. Banking and credit industry observers say a tsunami of financial, regulatory and economic forces is leading issuers to drive up the cost of borrowing on credit cards. The recession, financial market turmoil, the frozen credit card securities market, job losses and growing credit card payment defaults are fueling some of the changes.

Upcoming regulations. Card issuers are also gearing up for 2010, when sweeping changes in federal credit card regulations will go into effect
• Profitability problems. Moody's, a New York credit rating agency, used a stress analysis to evaluate the strength of the six biggest credit card issuers -- Bank of America, Chase, Citi, American Express, Capital One and Discover -- and found that maintaining profitability this year will be a struggle for some. The six collectively hold 80% of the nation's nearly $1 trillion in outstanding credit card balances. Can we even fathom these numbers? I sure can't!

There's a real danger in what card issuers are doing. Fewer than 10% of card users default on their payments or pay late, yet issuers are increasing rates on some of their on-time customers. These companies may be damaging the relationships with good customers they'll need for long-term growth with all of these changes.

What you can do
Read and Review all correspondence from your card issuers. It may not be easy reading, but it can have a big impact on your finances.

Talk back: Have you been hit by sneaky credit card changes? Examine your statement to see if the credit line has been lowered, if the APR (annual percentage rate) has been raised and if your minimum monthly payments have been increased.

As for those people who are closing accounts in protest of the changes, proceed with caution. You may win the battle, but you will lose the war. Closing credit card accounts can lower consumers' credit scores, especially for older accounts that demonstrate lengthy credit histories.

In addition:

Continue to use your cards, moderately. Charge something small and pay off your balance at the end of every month.

Redouble efforts to make every payment on time.

Pay down debts to build good credit scores.

Comparison shop. Good deals still exist for those with good credit.

I have Debt Settlement Plans that will help you lower your overall debt by 50%, pay off your balances in 12-36 months, and get rid of all that interest once and for all.

Sources: Connie Prater from CreditCards.com