My Credit Card Interest Rate Raised for No Reason
Credit card companies are coming under fire lately, and in our opinion, deservedly so. Credit cards of all kinds are now taking advantage of the 10 pages of fine print you agree to when signing up for a new card, which gives them the rights to basically do whatever they wish to your interest rate. It is not uncommon now for good customers, those that pay their card in full every month on time, to have their rates raised. Sound unfair, well it is. Because of the problems associated with the mortgage mess and even hedge funds, banks are now looking for other ways to balance their books, and they are turning to the average consumer.Congress is now in tune to the problem and has held various oversight hearings. However, we feel it is unlikely that any major reforms in the industry are likely during the election year, but attention to the issue will only heat up. Half of Americans carrying total credit card debt average around $10,000 each (according to the U.S. PIRG). Because of the enormous amount of debt people are facing in other areas of their life with student loans, ARM mortgages etc., it’s hard for anyone to afford jacked interest rates on their credit cards.
Common Practices Credit Cards are Using to Get More From You
Double-cycle billing: This is a practice, which is confusing when explained in plain English, let alone when sifting through the fine print. Here, banks issuing credit cards will charge you interest on the entire amount you charged during a billing cycle, regardless of the amount you actually pay off. For example, if you charge $2,000 one month and pay off $1,900 leaving a balance of $100, the bank will make you pay interest on the full $2,000 in the next month and beyond, until the remaining $100 is paid off.
Universal Default Pricing: This is a practice where banks are taking advantage of good responsible customers. Regardless if you have never missed or had a late payment on your current credit card, companies may now raise the current interest rate on your card if you are late on a completely different bill with a completely different company. In addition, they can raise your current rate if your credit score falls.
Zero-Tolerance Late Payment Policies: Little leeway now is given to customers
from certain financial institutions. You can now be charged the same late fee for being an hour or a day late as those customers who are months late on their payments. Keep in mind that due to the magical fine print you agreed to, any late fees may also result in a penalty rate imposed on your account, which according to CNN can top 30%, which can be applied to not only purchases you are going to make in the future, but also the ones you made last week!
Suggestions
Milk Your Money is troubled by these practices, which are becoming more common, and has a few recommendations you should take as a cardholder to ensure you are not a victim of these rate hikes.
1) Read your statement each month. Look to make sure that the interest rate remained the same from the previous month. Look to see if any fees or penalties were charged to your account. If any of these appear on your statement, call you company and get explanations, you many see these charges dropped, just for asking.
2) Stop using multiple credit cards. The more credit cards you are using, the more likely you are going to “break the rules,” with one of the companies. For example, you might go over your credit limit or forget a payment. Focus on using one card and really understand the terms of the card to ensure you use the card only to your advantage.
3) Forget about rewards programs if you are paying interest month to month. Rewards from credit cards should only be taken into consideration for those that are truly responsible with their spending. Rewards average around 1% of your total purchases. This is a number, which is wiped out with one late fee assessed to your account or a month-to-month interest payment. Companies love that people are obsessed with earning frequent flyer miles or any other reward when using a card, many of these people don’t look at their credit card statement, but do look at how many miles they have earned. Money is money, so treat it that way.
4) Call your card issuer and ask for a lower rate. We have stressed this before in an earlier post. Nearly half of the people who call into their company asking for a reduced rate are successful. This is an amazing number! Credit card companies spend so much money marketing their cards and gaining new customers, that once they have you, they don’t want to lose you. Take advantage of this and ask for a lower rate today! $
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Comments
You are so right. But one other thing is that our “leaders” in the senate and the congress totally screwed all us little guys buy allowing Banks and Credit cards almost unlimited freedoms to do what they want. They can charge interest rates that used to get lenders jailed, raise your rate, they doubled or tripled peoples minimum payment…and more. Write your congressmen and senators and complain.
Remind them they will be up for reelection and you’re looking at people who protect their constituents.
@ Charli: Thanks for the input, you are right on. MYM is trying to do something about it too, see our post on 8/4/08:
http://milkyourmoney.com/2008/08/04/milkyourmoney-com-comments-on-proposed-credit-card-rules/
I saw that after I posted. Hopefully things will get better because I see bleak times ahead especially when the bottom falls out and the depression hits.
[...] giving out their money these days. If you pay late you may find your interest skyrocketing. Universal default allows one credit company to raise your interest rate if you’re late on a different [...]
There was an article in Businessweek a little while back that talked about how Bank of America was raising rates on many of it’s good customers cards. In one case a customer had their limit raised by BofA only to have their interest rate raised when they used the credit. It
s crazy how these companies try to get every dime out of us!