Credit Cards-The Game has Changed!

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THE CREDIT CARD GAME HAS CHANGED

CREDITgARDgAMEStories abound of people being caught up with credit card debt that seems to be on a continuous upward spiral. Perhaps you have experienced this yourself at some point.

New reforms introduced from 1 July 2012 might make getting the credit card back under control just a little bit easier and those unsolicited invitations from our credit card provider to increase our limit might be a thing of the past.

Some of the new arrangements only apply to new credit card contracts but others apply to both new and existing contracts. So everyone is expected to benefit from the reforms.

When applying for a new credit card, issuers are now required to give you a fact sheet that sets out key information in a standardised format. This should make it easier to compare offers from different credit card providers.

Credit card contracts entered into on or after 1 July 2012 must include the following provisions, in addition to the fact sheet mentioned:

  • Customer will be asked to nominate their credit card limit, allowing you more control;
  • Fees charged on spending that exceeds the credit card limit (over-limit fees) are banned unless you specifically agree to this fee being charged when you apply for your credit card. Check the fine print carefully, or ask the issuer directly if over-limit fees apply;
  • If you exceed your card limit, your card provider must notify you within two business days, thereby giving you the opportunity to stop spending or make a repayment in order to control the increasing level of debt; and
  • Credit card providers are required to direct payments to the most expensive part of your credit card debt first. Many credit card contracts have different interest rates including one for standard purchases, another for cash advances and in some cases, an introductory rate that applies to transfers from other credit cards. Having payments directed to the most expensive items first will assist in making it easier to reduce debt.

While the foregoing conditions apply to new credit card contracts, there are some changes that will apply to both new and existing credit card customers.

If you have received a credit card statement since 1 July 2012, you may have noticed some changes. All credit card statements are now required to include a “minimum repayment warning”. This warning contains personalised information and states how long it will take to pay off your credit card if only making the minimum monthly payment and not adding any further charges.

In addition to the minimum payment warning, credit card providers will no longer be able to make offers to increase your credit card limit unless you agree and providers must clearly show how their interest free period works.

Hopefully managing your credit card might have become just a little bit easier.

DID YOU KNOW:

A credit card balance of $4,000, attracting an interest rate of 18%, will take three years and 11 months to repay based on a monthly repayment of $120. Total interest will amount to $1,586.

If the monthly repayment is increased to $200, the repayment period is slashed to two years and the interest paid is also halved.