Finally there will be a law to regulate credit card companies and their practices. Credit cards have now become a necessity for the American public. It is impossible to skip the plastic card when you need to buy groceries, sign up for a cell phone, rent a car, subscribe to magazine subscriptions and the list goes on.

Congress passed legislation that will overhaul the credit card industry by placing new restrictions on interest rate hikes and penalty fees that consumers face.

The Senate passed the bill on Tuesday and the House followed suit on Wednesday. President Obama has said he’d like to sign it into law before Memorial Day.

NPR.org has provided answers to frequently asked questions regarding this new regulation:

Here, a look at how some of these changes will affect consumers.

What impact will this legislation have on credit card interest rates?

The legislation will prevent arbitrary interest rate hikes by credit card companies.

Banks will have to wait 60 days before raising the rate on late-paying customers, and they will be required to reinstate the old rate once the cardholder makes payments on time for six months.

The legislation will also prevent companies from raising the interest rate on any outstanding credit card debt consumers have if they are late paying bills for other credit cards they might use. And it will require credit card companies that choose to increase interest rates to periodically review and lower them if the review warrants it.

For new credit card customers, the legislation will also prevent issuers from increasing rates in the first year after the account is opened.

Many banks already offer cards that comply with some of the rules contained in the legislation.

How about the fees that credit card companies charge?

Credit card fees have long been a thorn in the side of consumers. The legislation will prevent issuers from charging a fee to pay off credit card debt by mail, telephone or electronic transfer, except when it requires someone’s help to expedite the payment. It will also require penalty fees to be “reasonable and proportional” to the violation.

What about all the credit card terms and conditions?

The legislation requires credit card holders to receive 45 days’ notice for any interest rate, fee or finance charge increases. Issuers will also have to post on the Internet the terms of their credit card agreements (some banks already do this).

The 45-day notice and some other parts of the legislation are already scheduled to take effect in July 2010 as part of Federal Reserve regulations. Any legislation, however, will place further limits on fees and on those eligible to obtain a credit card.

The legislation aims to protect people under 21. How will that work?

Young people who are new to the concept of credit cards can quickly find themselves in a pile of debt. The legislation aims to protect people under 21 by requiring the signature of a parent or guardian who will take financial responsibility for the debt. Alternatively, those under 21 could obtain a credit card without a parent’s signature as long as they are able to show they have the financial means to repay any balances they might carry on the card.

College students are often lured by the promise of credit cards. The legislation will bolster protection for these students against aggressive credit card marketing and provide more clarity about deals that have been made between credit card issuers and universities.

Are there any benefits for people who pay their credit cards on time?

Yes. The legislation will ban double-cycle billing, under which issuers apply interest to a balance that has already been paid.

It will also require that payments made at local bank branches be credited the same day. And it will prohibit late fees if the issuer delayed crediting any payment.

How soon will these changes take effect?

The requirement that the credit card industry notify cardholders of an interest rate increase will go into effect 90 days after the legislation is enacted. The industry will have nine months to make all the other changes.

Who will police the credit card companies?

The Federal Reserve Board will be the main agency reviewing the practices of the industry and the terms of credit card agreements they make available to consumers. Credit card issuers are also subject to regulation by other state and federal agencies.

In today’s American life, credit or a debit card have become a necessity. These plastic cards offer convenience, security and easy expense tracking. Good news is that you can earn free money/ rewards by using these credit cards, which you were going to use anyway.

Kinds of Rewards

Cash:

I personally like this award the most. With cash rewards, you can do anything with the money and are not stuck to a specific store, specific kind of merchandise or have to travel to use the award. A credit card that offers cash back usually rewards cash as a percentage of purchases made using the credit card. For example, you might receive 1% cash reward for each $1 you charge. Cash can also be rewarded in specific increments once you charge a certain amount of money, like a $25 reward when you charge $2,500.

Store/Merchandise Awards:

The points reward system offers a certain number of points per $1 of purchases. These points can be redeemed for merchandise and gift certificates for specific stores like best buy, gap stores, etc. The credit card may place limits on the vendors with which rewards can be redeemed. Rewards in the form of discounts on good and services are also available.

Travel Awards:

Some credit cards reward you with airline miles that can be redeemed for airline tickets. The amount of miles rewarded varies by credit card. Similarly, the number of miles needed to purchase a flight varies by airline.

Choosing a Reward Credit Card

Before ewe go into the steps in choosing the right reward credit cards, always remember that you are receiving an award based on the % of your spending. Therefore do not get into the trap of trying to earn more awards by spending more!!

Credit card rewards are only beneficial if you will actually use the rewards. If you never fly, having a credit card that rewards you with airline miles is virtually useless. The first thing you should consider when choosing a reward credit card is how useful the rewards will be.

If the credit card rewards you with points that can be used at certain vendors, make sure you first shop at those vendors before applying for the credit card.

Cash back rewards are the most universal. When you consider a credit card that offers cash back rewards, find out how the rewards are redeemed. Some credit cards give rewards in the form of a check, while others credit the rewards to your account.

The cost of the credit card is another factor that you should consider. If the credit card has a high interest rate, annual fee, or other associated costs, weigh those costs against the reward benefits you will receive. Avoid cards that cost more than they benefit.

Choose a reward card that allows you to accumulate an unlimited amount of rewards that never expire. You could end up forfeiting some or all of your rewards, if the credit card places limits on the amount of rewards you can receive or the length of time you can use them.

Last and a very important aspect in this selection process is to review users comments and feedback for the credit card company. Surf the internet to find the issues, concerns for the credit card company.

The Final Decision

Credit card rewards are excellent incentives for using your credit card. Before you make a final decision on a credit card, make sure you fully understand the reward program, how rewards are accumulated and any restrictions that apply to redemption of the rewards.

Once you obtain a rewards credit card, it’s important that you use it wisely.