If you’re like most credit card customers, you’ve gotten notes from your bank in recent weeks.
Perhaps the card company told you that the interest rate was rising 4 percentage points. Or it cut your credit limit in half. Maybe an annual fee has appeared for a rewards program as part of an “enhancement,” or the travel points no longer yield quite what they used to.
Why is this happening? Recently, the first of a set of new rules went into effect resulting from the landmark credit card legislation passed earlier this year.
Banks must now provide written notice to customers 45 days before increasing the interest rate or changing the terms on a card. So banks raced to get out in front of that requirement, making a bunch of changes before the deadline, lest they have to give you a month and a half of warning.
Irritated by the changes? Inclined to take your business elsewhere now? This is exactly the right instinct, since plenty of people can still get a better deal from a different card. Fee-free balance transfers still exist. And banks have barely touched the most lucrative rewards programs — and wouldn’t dare fiddle too much given the revenue they generate.
The best revenge is a better card. Here’s how to find one.
IF YOU HAVE CARD DEBT: If you pay your bill in full each month and are only trying to maximize rewards, you can skip this section. If you carry a balance, please (please) stop. If you lack self-control and want to put a stranglehold on your spending, use a debit card instead. Once you have the debit card, ask your bank to turn off any overdraft protection that would allow you to spend more at the store than you have at the bank.
If you carry debt part of the year because of irregular income — or have changed your habits but are still paying your way out of the hole — there still may be ways to pay less interest. Start by calling the card company, telling it that you’re considering leaving and asking for a better deal. The worst thing that can happen is that it will say no.
If your bank turns you down, start shopping. Sites like CreditCards.com, CardHub.com and CardRatings.com can give you a sense of your options. But don’t stop there, because the sites may not list all of the best deals. Credit unions often offer lower interest rates; find one that will accept you at Creditunion.coop. Also, anyone can become a member of the Pentagon Federal Credit Union by paying $20 to join the National Military Family Association.
Why do this? PenFed lets you transfer balances to its card and pay 2.99 percent interest forever once you pay a balance transfer fee of 2.5 percent of the debt you move over, and as long you make your payments on time. The Finance forum on FatWallet, which is a must-read for the credit card cognoscenti, maintains a list of some of the remaining credit cards that still charge nothing for balance transfers and let you pay zero percent for at least a few months.
One big caveat: You’ll need a very good credit score to have your pick of cards and to get a high enough credit limit to be able to transfer your entire balance.
Alas, card companies aren’t in the habit of plastering their minimum FICO requirements on their Web sites. But you can call them and ask.
Also, keep in mind that if you get a new card, the issuers of your old card may cut your credit limit, which can hurt your credit score. They’ll argue that you’re a greater risk, since you have more available credit lines all of a sudden, and that you could run up a bunch of debt quickly before declaring bankruptcy. To you, however, it might look like punishment for fleeing.
If you’ve tried a few times to apply for a card and failed, it’s probably best to stop, since the inquiries on your credit report that result from repeated credit applications can hurt your score further. Better to pay down the debt on the old card as quickly as possible. You can improve your score that way since you won’t be using as much of your available credit, and you can save the next section of this column for once you’re out of debt and your score has improved.
IF YOU WANT CASH BACK: Let’s start with my first principle of rewards cards. Whether you’re seeking cash back, travel points or frequent-flier miles, users of credit card programs typically earn one penny for every dollar they charge, assuming they always pay their bills off and never pay interest.
The American Express Blue Cash card still helps big spenders easily break the 1 percent threshold, and the Amex Costco card gives you 3 percent back at restaurants. You have to be a Costco member to get that card.
What we all share, however, is a desire to pay less and earn more than the average customer. We can’t all be above average. But right now, when card companies are wondering how many changes they can make before driving us away, you’d be crazy not to try.
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