Has Your Credit Card Interest Rate Increased?

No one wants to see their credit card interest rate increased. What triggers these increases and is there anything you can do about it? Are credit card companies trying to scam you?

On the one hand, they provide a valuable service that gives you the convenience of purchasing items and services you need. Afterwards, you are able to pay the balance off in a manner that suites you best. On the other hand, many of the practices they follow are clearly unethical. Unless you are a contract lawyer, you may find it hard to see how different behaviors effect your credit. Everything is buried in the countless pages of fine print that comes with every cardholder agreement.

According to Harvard Law Professor Elizabeth Warren, the credit card companies are misleading consumers and making up their own rules. “These guys have figured out the best way to compete is to put a smiley face on their commercials, a low introductory rate, and hire a team of MBAs to lay traps in the fine print.”

businessman in a suit using a rope to pull up a percent symbol made of an arrow pointing upwards

Deadbeat or Revolver

In the credit card industry there are two types of customers – the deadbeat and the revolver. Don’t take this the wrong way but hopefully you’re a deadbeat. In industry lingo, a deadbeat is someone who uses their credit cards the way they are supposed to. These consumers pay-off their balances each month and therefore incur no interest charges. There is no profit in that scenario for the credit card companies. If you pay-off your balances each month (about one-third of Americans do) then you should be proud to be called a deadbeat because you are using your credit cards wisely.

On the other hand, the majority of Americans are called “revolvers”. A revolver carries over a balance and is considered to be “the sweet spot” of the banking industry. This “sweet spot” continues to expand as the average credit card debt among American households has grown to about $8,000 — which is more than double what it was just ten years ago. This debt has helped generate record profits for the credit card industry.

Rate Hike Triggers

The industry provides many reasons to justify credit card interest rate increases and in all fairness, some are actually valid. However, many are not and are just flat-out deceptive. One banking association spokesman said that, “Because the credit card business is unsecured lending, the risks associated with the business must be offset.”

Industry critics say that an ever growing share of the industry’s revenues come from deceptive tactics. One example is how the “default” terms are spelled out in the fine print of the cardholder agreements. The terms and conditions can be changed at any time, for any reason with only a 15 day notice.;

Here are just some of things that can trigger late fees, penalties or rate increases:

Late Payments

If you don’t pay your bill on time, the company seems quite justified in taking away your good rate. After all, you’ve broken the rules of your contract. Penalty fees and rates are sometimes triggered by a single lapse or a payment that arrives just a few days or hours late.

Exceeding Your Limits

Other triggers could be a charge that exceeds the credit line by a few dollars. You might even see your interest rate go up after taking a loan from another company. If the credit bureaus see you as “overextended”, your creditors may decide to adjust your interest rates.

Spending on Other Cards

If you think that card issuers don’t know with whom and how much you spend on other cards, think again. If you exceed your credit limit or make a late payment on another card it can trigger what’s called a “universal default clause”. This results in your credit interest rate increasing on other cards – cards that you may have had for years and never had a late payment on.

Debt Settlement Specialists

Defaulting on Non Credit Card Bills

Defaulting on any bill (utilities, cell phone, mortgage, etc) can trigger higher interest rates on your credit cards. Most bills are tracked by the 3 primary credit bureaus. With the emergence of technology, your information is readily available to any card issuer. If you default or pay late, they’ll spot it and it could result in higher rates on all of your credit cards.

Some experts say the profitability of credit cards began twenty-five years ago when the banking industry successfully eliminated a critical restriction: the limit on the interest rate a lender can charge a borrower. Deregulation, coupled with a revolution in technology that enables the almost real-time tracking of personal financial information and the emergence of nationwide banking, has facilitated the widening availability of credit cards across the economic spectrum. But for some, the cost of credit is often far greater than it appears.

If your rate is suddenly increased, the first thing you should do is cancel the card and move the balance somewhere else. If you can’t do that for whatever reason, then contact your local consumer protection agency and if all else fails you may need to contact a lawyer.

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