The New Credit Rules

The Federal Reserve has come up with some new credit rules that are designed to get rid of some nasty industry practices. Kelli Grant, Sr. Consumer Reporter for SmartMoney.com, weighs in on the pros and cons.

First, keep in mind that changes aren't going to happen overnight. "The Fed has given banks until July 2010 to put everything in place," says Grant.

However, that doesn't mean there's no silver lining. For one, the new rules state that banks must put your monthly payment towards the highest interest part of your debt first. This will save you money in interest in the long run.

The new regulations will also eliminate the "domino effect" of making a late payment. "[They] eliminate a lot of their sneaky practices," says Grant. "They can't raise your rate if you're late on another lender's account. They also can't raise your rate unless you're late on their account by more than 30 days."

Banks aren't too happy, though. Many believe the new rules will add to the credit crisis. Grant says the banks are worried about the future of risk-based pricing. Higher risk customers get higher interest rates. "This could tighten the credit crunch with the banks saying, 'Well, we're not going to take on any of these risky consumers anymore,'" says Grant.

But even the new rules won't stop everything. Grant says you still need to take a good look at your bill each month. Be aware of your credit line. Lenders can still slash your credit limit, freeze your cards and raise your rates on new purchases. Be aware of the terms of each card and keep an eye out for any sudden changes.

For more information on the new credit rules, as well as additional personal financial advice, click here to visit www.SmartMoney.com.

By Erin Petrun