Federal reforms having impact on credit scores

10.12.09
By Nicholas Storie

The federal Credit Card Accountability, Responsibility and Disclosure Act is bringing out some changes that people are feeling in their credit scores and overall debt burdens.

The main provisions of the federal law, which limits the interest rates and penalty fees card companies can impose on consumers, don't take effect until early 2010. However, many lenders have already begun taking steps to maintain their profit margins in light of these reforms.

"Because of the CARD act and lending standards tightening, [lenders] are going back and reevaluating the risk involved in credit accounts they already have on their books. And now, a lot of people have seen interest rates go up, and in some cases credit lines have decreased," Tanisha Warner of Money Management International told the Forth Worth Business Press.

The publication also noted that people seeking lines of credit for their small businesses, whether they are established or just starting out, are also likely to face greater scrutiny from lenders.

Elsewhere, a recent Philadelphia Inquirer article reports that card companies are also trying to increase their profit margins before the reforms take effect by trying to shake out customers who may be greater risks. One way they are said to be doing this is dramatically raising minimum payments on some customers.

Given the changing credit climate, especially with many lenders still unable to open new accounts or increase their limits, it makes sense to do whatever can be done to raise one's credit score.

Typically, credit card companies look more favorably on people who only use about a third of their current balance on existing accounts. Other strategies include trying to keep older accounts open as long as possible without opening or applying for too many new ones, and maintaining a variety of types of accounts, such as auto loans, as well as credit cards.

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Credit scores are more important than ever in light of new federal reforms.