Americans older than the age of twenty five may recall acquiring their first credit card through a parent’s mailbox unsolicited around age 18, enabling them to be a credit card holder and to incur any debt associated with it.  In the past, young adults received credit cards having no credit history and no proof of income.  As late as 2009, it was very easy for people under the age of 21 to be approved for credit cards upon simple application.    

Controversy surrounding credit card use by those under 21 has received attention as more and more Americans are haunted by bad credit. A recent study concluded that 9 out of 10 students attending college admitted to charging school expenses to their credit cards.  The trend remains as school costs continue to rise while teen and college employment remains on the decline.  College students once often fell victim to incentives used to entice them to sign up for cards.  While arguably a great way to build good credit, credit card possession came at too high a price for many young people who spent more than they could pay back on school expenses, cell phone bills, cars, dinners out, and other luxury items.  For many, this has resulted in severely damaged credit reports, low FICO scores, consequent inability to get home, auto, or business loans even after they’ve out of college, responsible, and ready.  Recently, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act was approved by the house to protect current young adults from this situation.    

 New regulations state that credit card issuers must now verify proof of income or otherwise require a co-signer before issuing a credit card to consumers under age 21, credit card issuers cannot send prescreened card offers to those under 21 unless they have consented to receive offers, card issuers cannot raise the credit limit on an account for persons under 21 with a co-signer without written permission from the co-signer and lastly, that Credit card issuers are prohibited from providing free items in exchange for applications when marketing to students on or near campus.  For many in their late 20’s, early 30’s, and even 40’s this regulation has come too late.  At this stage, financial counseling by a Credit CRM specialist is recommended.

For consumers, 2009 will always be known as the year of the ‘credit crunch’.  One of the biggest things consumers will remember is how poorly their credit card companies treated them.  Almost everyone received letters in the mail about their credit limits decreasing, interest rates rising, and the like.  Of course, this abusive behavior led to the passage of the Credit Card Responsibility, Accountability and Disclosure Act of 2009, or CARD Act for short.

Here’s a brief summary of what this Act does for cardholders, among others…

• Credit card companies cannot increase interest rates on existing credit card balances unless a customer is at least 60 days late.
• A guaranteed 21 day grace period on payments.
• 45 days advance notice of any interest rate increases.
• Tough rules around issuing credit cards to consumers who are under 21 years old.
• In the event of an interest rate increase, the credit card company must revert to the original rate after the customer makes six months of on-time payments.  Clearer disclosure of account terms before an account is opened.
• Restrictions on over limit fees. If a consumer has not “opted in” to allow a credit card issuer to approve a transaction that puts you in an over limit positions, they have to either decline the transaction or not charge you the over limit fee.
• No additional fees because of the method of payment.
• Billing statements must be mailed 21 days prior to the due date, and companies cannot charge a late fee if a payment is late due to a delay in processing.  Applications of payments above the minimum now have to be applied to the balance with the highest interest rate.
• A credit card company cannot raise interest rates in the first year of a customer relationship, and promotional interest rates must last at least six months.

So what should I do in 2010 in order to position myself in the best place?  You can find yourself almost completely exempt from the credit crunch by doing two things:

1. Getting out of credit card debt, and
2. Increasing your credit scores.

By getting yourself out of credit card debt it allows you to escape the abusive treatment by lenders. Remember, things like interest rate and minimum payment increases only matter if you carry a balance. Getting out of and staying out of credit card debt puts you in a very enviable position.
A second byproduct of getting out of credit card debt is the significant benefit to your credit scores. “Debt” makes up a whopping 30% of the points in your FICO® scores, which places it a close second behind whether or not you have negative information on your credit reports. And as many people have learned the hard way, the minimum score requirements to not only qualify but also qualify at the best interest rates have become more difficult to satisfy.

This means higher FICO scores equals approvals where in the past a higher FICO score meant an approval with the best rates.