Students looking to acquire a credit card in the near future should be aware of changes in the application process and interest rate policies.
Recently enacted credit card laws have created several big changes in the industry, said Dan Pierson, an accountant at Northland Credit Union in Spokane.
One of the biggest changes in the law is the requirement that a person interested in a credit card must be able to show proof of income, Pierson said. Most credit unions like Northland had already required proof of income before the new laws came into effect Feb. 22, while larger banks did not, he said.
As a result of the new law, anyone under 21 years of age interested in having a credit card must either show proof of income or have a co-signer on the new card, Pierson said.
Credit card companies are now also limited in their marketing strategies to young adults as well, he said.
Companies must now stay a minimum of 1,000 feet from college campuses if they are offering free gifts as an incentive for students to sign up for a card, according to creditcards.com.
“[Before] there was a lot of predatory lending,” Pierson said.
Students are often unaware of interest rates when they have a credit card, he said, adding that it is important to check these rates when signing up for a credit card.
“Don’t base [your credit card choice] just on minimum payments; look at the interest rate,” Pierson said. “Otherwise, that CD player that cost $100 will end up costing $400 [after paying interest].”
Pierson said the rates at Northland Credit Union are based on a customer’s credit score, adding that each institution has its own scale.
Before the new laws, an increase in the interest rates affected a customer’s entire credit balance, Pierson said. Now, a hike in the interest rate will only be applied to purchases made after the increase, he said.
However, decreases in interest rates are applicable to the entire credit balance, he said.
As a result of the changes, a student with one credit card may have two different balances accruing interest at different rates, Pierson said.
“[Now] any payment paid above the minimum payment goes to the account with the highest [interest] rate,” he said.
In addition, credit card companies must mail statements 21 days before the due date, Pierson said. These statements must indicate how long it will take to pay off a balance if a customer only makes the minimum payments each month.
All of the new laws are geared toward helping customers with their credit card debts, he said.
“Basically, [the law supports] anything that benefits the consumer,” Pierson said. “It’s not written [in the law] but that’s what is implied.”
Pierson added that it is important to make as much payment on an account as possible.
“If you are paying a 2 percent payment on an account with 24 percent interest, it will take a long time [to get out of debt],” he said.
Contact Morgan Feddes at morgan.feddes@whitworthian.com.
Credit laws benefit consumers
Published: Monday, March 8, 2010
Updated: Monday, March 8, 2010
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