What the newly passed credit card act means for you (in plain English)

https://media.zenfs.com/en-US/blogs/partner/credit_cards.jpgA few weeks ago we debated whether a person should have to be 21 to get a credit card. Fifty-four percent of you said yes. The U.S. government recently voted on the exact same question. Wanna know if the big guys agreed with you-and what the rest of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 means? (It's a lot of good stuff! Seriously!)

First, I really tried to translate this on my own, but after eight minutes of reading sentences like "if an obligor under an open end consumer credit plan"-gah!-I decided we'd all be better off if I left the money talk to the pros and focused on less taxing pursuits, like giving myself a pedicure.

See our tips: Five Secrets of Women Who are Richer Than God

I emailed the penny-wise Viet Do of StopBuyingCrap.com-who had already done a breakdown for his readers-and asked him to break it down even further. So here's the deal:

  • You have to be 21 to apply for a credit card. (If that's not proof that Glamour readers should run the world, I don't know what is.) 18-year-olds can still apply if they submit proof of employment with their application, or if a parent or guardian will co-sign on their behalf.
  • Credit card companies can't increase your interest rate on an existing balance unless your payment is 60 days late. And, if you are 60 days late but make on-time payments for the next six months, they have to lower your rate back to what it was.
  • No more accidental over-your-credit-limit fees. In the past, many credit cards would let you spend well beyond your credit limit-your purchases wouldn't be declined at the register-then they'd nail you with a huge over-limit fee on your next bill. Now you'll be told while you're paying that the purchase will push you over your credit limit, and you can choose whether to complete the purchase (and pay the fee later).
  • Payment allocation will work in your favor. Meaning, say you transfer $1,000 credit-card balance to a card with 0% interest on transfers. And say the new card charges 10% on new purchases. If you spend $500 on the new card and make a $500 payment, the payment used to be taken off the 0% balance, while the $500 you spent would gather interest. Now payments have to go toward the higher-interest balance, which means you'll spend less on interest.
  • You get advance notice if your account terms change. In the past, credit card companies used to just add little enclosures with your bill that said, "By the way, you now have to pay $50 if you miss a payment and we're charging you a $6 monthly service fee, starting now." Under the new law, your credit card company has to tell you about changes 45 day in advance, so you have time to bail if you're not happy with the terms.
  • No more "universal default." In the past, a credit card company could monitor all of the payments you made to any company. So if they saw you paid your electric bill late-even if your credit card payments were always on time-they could raise your credit card interest rate or cancel your account. That's pretty much as shady as it sounds. And it's now illegal.
  • Also under the new laws, gift cards must now be active for five years from their date of activation. Some companies used to issue gift cards that expired a year from the day they were purchased. Meaning if the card was unused, the money went back to the company after 365 days.

There's a lot more fine print and legal jargon in there, but those are the big changes that will happen when the law goes into effect in February of next year.

Did anyone freeze their credit cards after this post? (I did!) Or are you guys still buying with cards?

Related: 20 ways to live rich on less money!

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