President Obama will soon sign new legislation that provides sweeping consumer-friendly reforms to credit card practices. The changes are scheduled to become effective in Feb 2010 ; that’s a lot better than another set of reforms made last December but that weren’t scheduled to become effective until July 2010.

There are some seriously great new rules you need to know about.

• The interest rate charged on an existing balance can’t be changed as long as you are up to date on your payments; the card issuer can only raise the rate on existing balances if you are 60 days behind in payments.
• You will get 45 days notice to any changes to your credit card terms. That’s a lot better than the typical two-weeks notice you now get, which gives you limited time to come up with a Plan B if you don’t want to accept the new terms.
• The initial interest rate on a new card is set in stone for the first 12 months provided you make on-time payments.
• When you pay more than the minimum balance due on your card, any excess payment will be applied to the balance charging the highest interest rate. For example if you have a cash advance balance charging 23% interest and your regular balance charges 15%, the extra payment will go toward paying down the cash advance balance. Under existing practices, credit card companies love to assign your extra payments to the balance with the lowest rate because it makes more money on the higher-rate balance.
• If you are hit with a higher rate (say because you fell behind in payments) you can regain your lower interest rate after six months of timely payments.
• Credit card issuers can not charge you an over-the-limit fee unless you specifically agree (sign an opt-in agreement) to allow you to make charges over your stated credit limit.
• Bills must be mailed out 21 days before payment is due; that’s one week more than the current 14-day rule.
• Anyone under the age of 21 will be required to have a co-signer for a card, or must prove he or she has sufficient income to repay credit.
• Gift cards can not expire in fewer than five years and if the card has a dormancy fee-meaning a charge if the card is unused for a certain period-that fee must be printed on the card.
• Universal default is banned. This is the practice in which a card issuer can change the terms on your card based on your record with any other card. Under the new law your credit card issuer can change your terms based solely on how you are handling its card.

What’s not included in the new legislation is any cap on interest rates. You can still be hit with a rate of 30% or more if you don’t follow the new rules. So people listen to me: It’s still on you to get out of credit card debt. All the legislation in the world won’t buy you true financial security: knowing you pay your balance off in full each month. Ultimately that’s the only way to avoid paying big time for using a credit card.

If you want to read the details of the new legislation; here’s a link to the Senate version of the bill that was passed by the House that President Obama will sign into law. The changes won’t become active until February 2010. While that’s better than the July 2010 date for another set of reforms announced six months ago, that’s still plenty of time for the card companies to mess with your card terms. So between now and February 2010 you must be extra careful and responsible with how you handle your card debt.