Credit Cards That may not be too bad

Are you mad as hell at your credit-card issuer? Take a number.

Recently we've gotten e-mails from Kiplinger readers complaining of dramatic interest-rate hikes (in one case from 9.9% to 17.9%), fixed interest rates being converted to variable rates, sudden account closures and other changes in terms. Most of the letter writers are mystified -- they say they pay their bills on time and send more than the minimum monthly payment.

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A survey released in March by Credit.com found more than one-third of cardholders surveyed were somehow penalized by their credit-card companies. Fifteen percent reported higher interest rates, 11% said issuers had raised their minimum payments, 9% said due dates were changed, and 8% said their credit limits were lowered or their rewards program cut back. Seven percent of cardholders had their account closed.

Times are tough, say credit-card companies, and a rising tide of delinquencies and defaults leaves little choice but to toughen up on consumers. But fueled by populist anger, lawmakers on Capitol Hill are determined to pass legislation that gives consumers more rights, and President Obama has outlined his support for reform.

The House passed a Credit Cardholder's Bill of Rights on April 30, and the Senate has its own reform bill pending. Despite the powerful banking lobby, legislation could well be signed into law as early as this summer, although implementation of many provisions may be delayed until next year. At a minimum, a new law will likely incorporate Federal Reserve regulations scheduled to take effect in July 2010. It's a good bet you'll see an end to arbitrary rate hikes on existing balances, for instance, and issuers will likely need your permission for approving charges that exceed your credit limit, triggering fees.

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Consumer-Friendly Cards

Some lawmakers are calling for a freeze in rate hikes until new legislation protecting consumers is enacted or new regulations kick in next year. But for now, credit-card issuers are free to arbitrarily raise rates and cut benefits. Still, smart credit users with good credit can assemble a hard-working portfolio of cards -- especially by applying for cards from community banks and credit unions, which often have lower rates than money-center banks.

Credit unions by law must cap interest rates on any type of lending at 18%, but most credit-card deals are much better. One of our favorites: Pentagon Federal Credit Union's Visa Platinum Rewards card. There is no annual fee, and you get a 5% rebate on gas, 2% on groceries and 1.25% on everything else. The card, with an interest rate of 13.99%, is usually best for holders who pay off the balance each month. But it also has a balance-transfer offer with a 2.99% rate good for the life of the balance, with a maximum transfer fee of $100.

Another balance-transfer offer worth considering is a Visa Classic card from Pulaski Bank & Trust (soon to be known as Iberia Bank), in Little Rock, Ark. The 0% balance-transfer offer is good for six billing cycles, and there is no transfer fee.

These days, especially, it's nice to get a little something back from your credit card. The BP Visa gas card earns a 5% rebate on gas, 2% on travel and dining, and 1% on everything else. Plus, you get double rebates for the first 60 days. We also like the Simmons First Visa Platinum Travel Reward card. You earn one point for each dollar spent; it takes 22,000 points for a plane ticket anywhere in the 48 contiguous states.

Despite a $35 annual fee, for a low rate it's tough to beat Iberia's Visa Classic cards, with a purchase rate fixed at 6.5%, compared with a national average of about 13%. Farm Bureau Bank's no-fee Platinum MasterCard currently carries a low, 5.24% variable rate. We like Pentagon Federal's card among those that give you cash back, as well as the American Express Blue Cash card. With the latter, you'll earn a 1% rebate on grocery, drugstore and gasoline purchases, and 0.5% on all other purchases until you spend $6,500. After that, you'll earn 5% on groceries, gas and drugstore items and 1.25% on the rest.

A flock of new cards is tapping into our new, frugal zeitgeist by helping you pay off your mortgage, rebuild your retirement fund or save for college. For each $2,500 you charge on your Wells Fargo Home Rebate card, the bank applies 1% of that amount to the principal of your Wells Fargo mortgage. Fidelity Retirement Rewards American Express card gives Fidelity account holders a 2% rebate that can be deposited in any Fidelity-managed individual retirement account. The Schwab Bank Invest First Visa card sweeps a 2% rebate into your Schwab IRA or brokerage account.

The new Upromise World MasterCard deposits a 1% rebate on all purchases in your Upromise college-savings account, then adds another 10% rebate on spendng at drugstores and groceries. Depending on the card, you can add to your Upromise account from rebates on gas purchases or dining. Fidelity's 529 College Rewards American Express card earns a 2% rebate that can go into any Fidelity-managed 529 account.

Evaluate the Cards You Have

"Frankly, we're in extraordinary times," says Adam Levin, former director of the New Jersey Division of Consumer Affairs and founder of Credit.com. Such times call for a thorough evaluation of every single card in your wallet -- and the cards stuck away in your drawer, too.

Start by regularly monitoring your accounts online. Pay attention to credit limits and annual percentage rates, and, above all, read any notices that come in the mail. If you spot a change in terms for the worse -- especially if you can't remember a likely trigger, such as making a late payment or exceeding your credit limit -- get on the phone and work your way up the supervisory chain. A computer may have swept your account into a portfolio review. But humans have the capability to override automatic changes.

Recognize that you have the right to reject new terms, but think twice before you do so. If you opt out, your account may be frozen while you pay off your balance under the old terms, and then closed. Closing the account can have repercussions, especially if it is one you've had for a long time. Longevity of your credit history accounts for 15% of your credit score.

Be aware that balance transfers aren't what they used to be. Credit standards are stricter for 0% offers. Whereas a score of 720 used to suffice, 750 now seems to be the cutoff, says Ben Woolsey, of CreditCards.com. Terms that used to last 12 months have been cut to six.

Balance-transfer fees are rarely capped these days, and some companies -- including Bank of America, effective June 1 -- will jack fees from 3% to 4% of the transferred balance.