A year ago, President Obama signed the Credit Card Act, a long-overdue reform law. However, most of the consumer protections, such as limiting when interest rates can be raised, banning universal default and double-cycle billing, and limiting access to credit cards for college students and other minors, only took effect in late February.
I've gotten plenty of e-mails from people frustrated with their credit card companies. The litany of complaints range from reduced credit limits to higher fees and interest rates to the issuer closing their account. The natural instinct in most cases is to cancel the credit card. But in almost every case customers hesitated for fear of damaging their credit score.
My answer is always the same: Cancel the card.
Credit card issuers blame the new regulations for their actions, and it's true that they can't continue some profitable business practices that relied on taking advantage of consumer naïveté.
The primary culprit, however, is that credit card issuers are under financial pressure. Defaults and late payments are hurting the bottom line. The business is also less profitable as many folks struggle to pay down their credit card debts, avoid interest charges and use their debit cards instead. Credit card issuers are hoping that enough customers will pay a higher fee or a steeper interest rate to avoid damaging their credit score.
Here's the thing: A competitive capitalist economy is a wonderful system in many ways. It gives the consumer choice. You don't have to do business with any one credit card issuer or company. You shouldn't have to pay for its business mistakes and you shouldn't be hostage to the algorithms of the credit scoring business. There are plenty of credit unions, community banks, independent banks, online banks and other credit card issuers that might offer a better deal. I'd shop around. That's the real power a dissatisfied customer can exercise.
Remember, the key to a good credit score is paying your bills on time over time. What's more, a closed account doesn't always nick a credit score and, even if it does, the effect is temporary. And most of us aren't taking out loans so frequently that the credit score is vital all the time.
Again, pay your bills on time, don't assume a lot of debt, and your credit score will take care of itself.
That said, closing an account can matter to your finances if you're in the market to borrow a lot of money, say, for a home or a car. Or perhaps it's time to change apartments or you're thinking about changing auto insurance companies. In that case, it's a reasonable precautionary move to pay the new higher fee or accept the steeper interest rate charge just to keep your credit score pristine.
But I'd still shop around for a better deal and, as soon as you've closed on the loan or changed insurance company, I'd cancel the card and do business with an issuer offering better terms. It's better for you and it rewards companies doing better by their customers.
Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to firstname.lastname@example.org.