Consumer Watch: New law means new rates for some cardholders - Military Money, Navy Money, navy pay, pay charts - Navy Times

Consumer Watch: New law means new rates for some cardholders

A sailor wants to know why his credit union raised the interest rate on his credit cards.

“I have a 725 credit [score], had the card for four years with no late payments whatsoever, and even have the card at half the available balance,” Aviation Electronics Technician 2nd Class James Allphin wrote.

Yet, he said, the credit union jacked up his interest rate from 12.9 percent to 16.9 percent. His only option, he said, is to pay off the balance on his card at Navy Federal Credit Union and close the account.

Like many other financial institutions, Navy Federal officials said they’ve re-evaluated their credit card rate structure in light of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, taking effect in February.

That includes going from a fixed rate to a variable rate, and re-evaluating the rates charged to each credit union member. In the 22 years it has offered credit cards, Navy Federal has always offered a fixed-rate product, said Jack Gaffney, vice president of lending.

“The Credit CARD Act makes it economically unfeasible to continue a fixed rate,” he said.

“Congress has said fixed rates will be that forever” once the law takes effect in February, which makes sticking with fixed rates too risky, he said.

Navy Federal didn’t raise interest rates on all members’ cards; Gaffney said most kept their current rates “or got a reduction.”

The variable rates go into effect Dec. 1 and will range from 7.9 percent to 17.9 percent, he said.

Pentagon Federal Credit Union is also going to variable rates for its cards. “It’s very much against [our] wishes,’’ said spokesman Steve Troxel, but PFCU feels it’s necessary because of interest rate volatility and the new law. Customers’ initial variable rate will be the same as their previous fixed rates.

But not everyone is switching. Armed Forces Bank’s fixed-rate credit cards will remain so. “We’ve discussed it, and plan to keep [the credit card program] the same,” said Bob Dixon, senior vice president of lending for the bank, which has branches at 30 installations — including the one where Allphin is stationed.

USAA’s credit cards have been variable for some time, spokesman Mike Kelly said, adding that USAA has not increased interest rates in advance of the new law’s effective date.

Allphin is right — you can take your business elsewhere if you’re dissatisfied with your interest rate or with other changes in your credit card terms.

But proceed with caution:

• Before doing anything, know your credit score. If your score is on the low side, you won’t qualify for the best interest rate.

• Comparison shop (see sidebar); study up at www.bankrate.com and www.creditcards.com.

• Carefully check all terms before accepting a new card.

Consider what’s important to you. If you pay off your card each month, the interest rate isn’t as important. Check whether the financial institution charges a fee if you don’t carry a balance. Don’t agree to be penalized for being responsible and staying out of debt.

• Make sure you’re approved for your new card and have it in hand before closing a current account.

• Applying for multiple credit cards within a short period will show up on your credit reports, according to www.myfico.com, but if your score drops, it probably won’t drop much. Dropping a card you’ve had for a long time could also affect your score.

Allphin has a tough decision to make. With his $4,000 balance, a new 16.9 percent interest rate will cost him about $13 more per month, or $160 more per year, than his current 12.9 percent rate.

“We’re also trying to purchase a home, which really complicates the problem,” he said. “If I close the account, that will negatively affect our credit rating.”

Weigh all the factors based on your situation.

You have choices

Here are examples of credit card terms at some military banks and credit unions. Many more financial institutions also offer cards.

• Navy Federal Credit Union: Variable rates from 7.9 percent to 17.9 percent, depending on applicant’s credit profile and type of card. No annual fees for most cards. Late fees $20. Over-the-limit fee being eliminated. Several rewards cards — for example, the Visa Cash-Rewards card pays up to 1.5 percent rewards.

• Pentagon Federal Credit Union: Variable rates of either 12.49 percent or 13.99 percent, depending on the credit card. No annual fees. Over-the-limit fee being eliminated. New late fee structure of $10 to $39 will be based on amount of balance. The Visa Platinum Cashback Rewards Card pays 5 percent back on gas purchases, 2 percent on supermarket purchases and 1.25 percent on all other purchases.

• USAA: Variable rates from 8.9 percent to 21.9 percent, depending on the applicant’s credit profile. No annual fees. No over-the-limit fee. Late fees $35. Two rewards cards with up to 1.25 percent back on purchases.

• Armed Forces Bank: Fixed rates of 9.99 percent, 15.6 percent or 17.99 percent, based on applicant’s credit profile. Most cards have no annual fee. Over-the-limit fee is being eliminated. Late fees $20. Rewards card earns merchandise or travel, one point per dollar spent.