Thanks to recent moves by the government, a kinder, gentler credit card may be just months away. But that doesn't necessarily mean you have to wait.
President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure Act just before Memorial Day, requiring the credit card industry to meet set guidelines on interest rate increases and consumer notifications, among other protections, by February 2010.
That means credit card issuers have months before they must end some of their nastiest practices, including raising rates on existing balances for any reason they choose, applying payments to the lowest-rate part of a balance while the highest-rate portions gather finance charges, and slashing credit limits to below consumers' existing balances. (See "The world's worst credit cards.")
Still, there are a few card issuers that have already taken steps to implement the new rules, says Samir Kothari, a co-founder of BillShrink, a Web site that compares credit card terms and deals. The site has been tracking issuers' compliance with eight key rules, including providing 45 days' notice of rate increases (five major issuers do this, including Wells Fargo and Bank of America) and letting cardholders set account limits so they can't overspend (six do this, including American Express and Discover).
SmartMoney talked to credit counselors, consumer advocates and companies that assess credit card offers to find out which cards are among the first to enact these new, more favorable terms and which offer the best perks for different types of spenders. Here are four worth considering:
Best for: carrying a balance.
Introductory offer: 3.99% on purchases and balance transfers for up to 12 months.
Annual percentage rate: as low as 10.99% (variable).
Annual fee: none.
Rewards: Make six consecutive on-time payments and you'll receive a cash bonus equal to your next month's interest charge. You'll also earn 0.25% cash back on the first $3,000 in purchases annually and 1% back on everything thereafter.
Per the upcoming law, Discover lets cardholders fix their credit limits so that any purchases over the limits would be declined. That, along with cash back and bonuses for on-time payments, can help consumers keep their spending in check, says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling.
"This is for the person who is not able to pay off the card in full when it arrives and doesn't want to dig into that natural debt hole that usually follows," she says.
Discover is also one of the few payment-friendly issuers, letting you choose your own due date and make free payments via phone, even at the last minute. It follows the new law's rule that any payment made by 5 p.m. on the due date is on time.
Best for: a low rate.
Introductory offer: 0% on purchases and balance transfers for up to nine months.
Annual percentage rate: 7.65% (variable).
Annual fee: zero, or $19 if you want to participate in an optional rewards program.
Rewards: none included. You can opt into the paid rewards program and earn one point per dollar spent on every purchase.
"Wells Fargo subscribes to some of the more important aspects" of the so-called Cardholders' Bill of Rights, says Ed Mierzwinski, the consumer program director for the U.S. Public Interest Research Group, a consumer advocate. Wells Fargo won't raise your rate if you're late on an unrelated account, and it provides at least 45 days' notice of rate increases. Also, statements are mailed to cardholders at least 25 days before the due date.
Once the 0% teaser offer expires, the Wells Fargo Platinum card offers one of the best continuing rates around for a major bank: 7.65%. (The average low-rate credit card has a rate of 9.01%, according to Bankrate.com.) The catch: You'll need a bank account with Wells Fargo to apply.
"That seems like a pretty high bar to me," Mierzwinski says. Make sure the account terms are to your liking before tethering yourself to the bank.