10 ways to play it smart under new credit-card law

The new credit-card law that takes effect this year will bring about changes for issuers and cardholders.

Issuers will be bound by restrictions on rate hikes and fees and increased disclosure requirements. Borrowers will need to know the key provisions in the law and the loopholes.

While the new rules will clamp down on retroactive rate increases, they don't prevent all negative changes to card accounts. Even consumers with high credit scores may not be able to avoid unwanted adjustments.

If a creditor wants to cut your credit limit, it might do so because your credit score dropped or your card usage is low or your payment behavior changed. Card issuers can close accounts on good customers or institute a new fee.

The best a consumer can do to maintain a good credit score and keep account terms intact is to play defense. Pay on time, keep balances low and don't close accounts unless it's necessary to avoid an expensive change in terms.

Consider these 10 tips for managing your credit cards in 2010.

Pay down balances

Reducing your outstanding balance protects against negative changes to your account, saves money and improves your credit score.

Until the Credit Card Accountability, Responsibility and Disclosure Act, or CARD, takes effect Feb. 22, you're vulnerable to interest-rate hikes that could apply to an existing balance.

A lower balance also could help cushion your credit-score against credit limit reductions. An important ratio in credit-scoring formulas is the amount of credit you've used versus your limit. If your limits are cut and your debt doesn't decrease, your score could drop.

Open credit-card mail

The CARD Act requires card issuers to give you the right to opt out of a "significant" change in terms.

In such cases, issuers must send out notices at least 45 days in advance of the effective date. That gives you time to decide whether to reject the proposed change.

Opting out cancels the account.

Check credit report and score

Your credit score is based on your credit report. If derogatory errors, such as delinquencies or collection accounts, are on your report, your score will be lower than it should be.

That's why you should check your credit reports at the three major credit-reporting agencies on a regular basis. It costs you nothing.

Federal law entitles consumers to a free copy of their credit reports from each of the three credit bureaus once every 12 months. Head to AnnualCreditReport.com and simply rotate the agency every four months to get a new credit report.

Unless you're in the market for a loan, you may not feel a need to pay for an exact credit score. Still, it's good to know. The knowledge can come in handy if you want to gauge whether your score is high enough for a new credit card that requires "good" credit.

Most card issuers use FICO scores, and most credit-score estimators deliver educational scores (or score ranges) not actually used by lenders.

Improve your credit score

In some cases, issuers will lower credit limits because the customer's credit score has dipped below a certain level.

Having a high credit score should qualify you for most credit cards. To boost your credit rating, pay bills on time and reduce card balances.

Avoid ordering several credit cards at once; too many inquiries on your credit report can lower your score.

Use inactive accounts

Rarely using a credit card may prompt the card issuer to close the account. Dormant accounts deliver zero profit to the institution.

In addition, some issuers charge inactivity fees for unused cards. Fifth Third Bank charges a $19 fee if the account hasn't been used in a year, and Citi is tacking on annual fees of $30 to $90 on some accounts that don't meet an annual spending threshold.

The shuttering of an account with a zero balance will cause a drop in your available credit, which could spike your debt-to-credit limit ratio.

Use a card at least once a quarter so the issuer sees some profit. Even if you pay the debt off when you receive the statement, the card issuer will benefit from interchange fee income generated from the transactions.

These fees, usually 1 to 3 percent of the purchase price, go to banks and payment networks such as Visa and MasterCard every time you swipe your card.

Spend rewards points

Card issuers reserve the right to scale back rewards programs or make it more difficult to redeem points. In this tight lending environment, cutting rewards is one way to offset losses.

Some issuers have already tweaked their programs. For example, Citi made a number of changes to its ThankYou Network program this year, including an expiration date on points.

Chase Freedom cardholders previously enjoyed a 3 percent cashback rate on their three highest spending categories for the month. Now the bonus categories rotate and aren't driven by the user.

Watch for changes to your rewards program and check your point total regularly. When it's most advantageous to cash out, do so.

Shop around

If you need a card with a lower interest rate and fees, compare credit-union cards and bank-issued cards. Credit-union cards generally offer more favorable rates and fees but are restricted to members.

Watch out for offers to go overlimit

Under the CARD Act, issuers can't charge overlimit fees for transactions that exceed the limit unless cardholders have opted in to go over their limit. Opting in means you would pay a fee if your balance climbs above the limit. If you don't breach the limit, you don't pay a fee.

If you don't opt in you won't pay a fee either, but you might see your overlimit transactions declined. That's up to card issuers like Capital One.

"Capital One is reaching out to some customers to explain that their over-the-credit-limit coverage will be ending in February," spokeswoman Pam Girardo wrote in an e-mail.

Girardo said Capital One customers who chose not to opt in would see their overlimit transactions declined. If they opt in and go over the credit line, they will be charged $29.

Ask for credit-limit increases

One CARD Act provision requires issuers not increase credit limits unless "the card issuer considers the ability of the consumer to make the required minimum payments" under the account terms.

That means it could be harder to qualify for credit-limit increases. Consider asking for higher limits now while they're easier to get.

The idea isn't to take on more debt but to increase your available credit, lower your ratio of debt-to-available credit, and boost your credit score. A higher score will help you qualify for better loan terms.

Explore free services, alerts

If you check account benefits online, you might discover free tools and services that could help you manage your debt or credit score. You might find access to free credit scores, spending analysis tools and custom alerts for key account changes.

For example, Discover offers Spend Analyzer, which breaks down your purchases by category and tracks spending over time.

Chase has a free feature called Blueprint. It lets cardholders create a payment plan that allows them to separate purchases they'd like to pay in full from those they plan to revolve.

If any free benefit comes with fine print, read it to ensure you're not signing up for a fee-based product.