Credit card issuers have lots of reasons to raise your rates

As if getting divorced or laid off wasn’t bad enough, such adverse life events could also drag down your credit score and boost your borrowing costs. Some credit card issuers adjust account terms based on spending patterns that could indicate a financial disruption in a customer’s life such as a layoff, divorce, or mounting medical bills.

In June, the Federal Trade Commission sued CompuCredit, an Atlanta company that issued millions of credit cards under nearly a dozen names, for deceptive marketing tactics. According to the FTC, CompuCredit also employed a “behavioral” scoring model whereby it reduced customers’ credit lines if they made payments to marriage counselors, car repair shops, bars, and pawn shops, among others. In some cases it reduced credit limits below customers’ existing balances and then socked them with over-limit fees.

Though this is an extreme case, other card issuers look for customer spending patterns that could signal financial problems. “If a customer has been with a bank for many years and never used their cash line but now are taking cash advances and using convenience checks that sends a signal,” says Dennis Moroney, research director at Tower Group, a business consulting company.

If you use your card for incidentals you once bought with cash or a check, such as groceries or household bills, your card company might conclude that you’re overstretched. If you make purchases with a card you don’t normally use, your issuer will note that too. (However, card companies are also closing inactive cards, which might ding your credit score).

Where you live might even be a factor. If you reside in a region little affected by the mortgage crisis, you could get better terms than someone with the same credit score in an area with high unemployment or foreclosures.

You might also find yourself paying higher finance charges because of plummeting profits for credit card companies. American Express recently announced that it would raise interest rates on some cardholders by 2 to 3 percentage points as of Dec. 1, due to the “challenging economic environment.” Most other card issuers have announced similar hikes and higher fees.

Card issuers alter terms as they please because card agreements typically have a clause allowing for changes “at any time for any reason.” Citibank was the one major issuer that didn’t do this. But, in mid-November the company announced it was raising rates by 2 to 3 percentage points for some customers. Citibank customers can opt out of the changes and continue making new purchases at their old interest rate and pay down balances at that rate after the card expires. American Express, however, is not allowing its customers to opt out.

Holiday shoppers may experience changes as well. Card companies typically add a spending cushion of 5 to 20 percent above the approved credit line around the holidays so that a consumer isn’t embarrassed at the checkout counter if they charge too much, and because rejected cards are often not used again. This year, creditors may decide to not allow certain customers to exceed their limit.—Chris Fichera

Related:

• Credit card rates that jump overnight
• Which way to pay: Credit, debit, check, or cash
• With credit cards, a deal is not a deal
• Chairman Bernanke—Enact credit card reforms now

Comments

[J.O. Haun]

My Citi interest rate jumped from 4.99% to a minimum of 14.99%. I do not seem to fit any of the criteria listed above. This is highway robbery. I could understand maybe a 2-3 % hike in light of the current crisis, but for someone who has followed all the rules and maintained everything in good standing, this is unacceptable. A phone call to them did not help resolve the issue. I opted out and will discontinue using credit cards. No company should have free reign to do as they wish with your account--period. Some restrictions need to be made regarding how much companies can increase rates during a certain time period. Why are there no regulations on this?

[J]

My Citi rate went from 8.99% to 15.99%, and it's pegged to the prime rate, so when rates go up my rate will be ridiculous. I have been a cardholder for over thirteen years and have a perfect payment record. Basically, Citibank has turned me into a subprime borrower, despite my impeccable credit. I have not called to 'opt out' because I'm still too mad to talk to them. They lost money because of their own stupidity and now I have to suffer consequences for it? BULL!

[Ken]

I think one of the best weapons that any consumer should use it to learn how credit works so that you can beat credit card companies at their own game. The basic one is pay your bills on time. But there are others such as:

1. Keep all your outstanding revolving credit card balances at 20% or less of the total limit.

2. Have at least one installment loan account.

3. Try to create your own credit conduit by borrowing from yourself! By this I mean recognize that the opportunity cost of using your own money verus the money provided by a credit card company is less (for most people).

4. Live below your means.

5. See each dollar that you earn as a soldier whose job it is to make more money for you as opposed to seeing yourself as a financial slave to the credit card masters who you are indebted to.

If everyone followed the rules above, it would force banks to change the rules of engagement - against consumers - as their profits would decline. This is already becoming evident as banks have increased the ATM withdrawal rates when using a non-member ATM. Don't be surprised if in the future there will be charges for using ATM's at member banks!

Banks are under financial duress due to the global credit crunch. Be aware for future attempts to dip into your pocket.

[Charles]

In my opinion our Representative have done very well in action for the large banks and corporations of the country who they have allowed for decades to dictate the interest rate 2-5% they pay to US citizens that loaned them money changing it as often as they like in their favor, while they get trillions of dollars from us for free which they use to the loans that they give us and dictate the interest rates, to us credit (cards) that they can dictate and change at a moment’s notice or at their whim as high as they want even predatory fashion; for instant Chase Bank credit card sent me a real nice letter saying that they would not be charging me over-due fees for the next several months, and then even though I paid on time in full charge me overdue fees and increased interest rate charged me to effective 37%; discovery card was even more enthusiastic and taking your blank check this week Dec 2008 and unlimited no regulation policy to charge me effective 53% interest-rate a whimsical load shark rate from my original 10%! Of course I am trapped due to divorce court for several years freezing all my assets. And of course completely back and protected by the US government and states who receive their cut of the profits in the form of taxation all legal of course.

[Renfield]

Why haven't you done an alert about a new scam: zombie debt. I'm a victim of it, and here's how it works. Get into a dispute over a small amount with a creditor, and they say the'll write it off. Then, a junk debt buyer comes along, buying the debt for pennies on the dollar - A LAW FIRM of course, comes along (Laci Katzen is one) and they form a First Investment company, then they file suit against you. And you know you owe them SOMETHING and try to negotiate, then they get a judgement against you. MSNBC did a story about this, as did JuJu Chang on ABC, but it remains a well kept secret, and they get away with it.

[M Baker]

Last month I was anticipating a large purchase to show on my Chase Visa card and intended to pay the balance upon receipt of the bill. It dawned on my one morning that the statement should have showed by then so I reviewed my past payments to reveal that was the case. I went on line to review my account for the first time only to find my payment was one day from being overdue. I transferred the funds from my bank just beating the due date. I then called Chase to complain at which they stated my recent request to be billed via e-mail instead of US Mail had been returned undeliverable. I never made any such request!! Also had no other problems with my e-mail even if I had, they had the right e-mail address. I inquired why the bill wasn't mailed if rejected at which I got no response. I did get the bill via mail a week later 6 days past the due date. I've worked very hard to have a near perfect credit score over 800 and track things closely. I suspect this was done to create revenue via late charges and then a ding to bring my credit score down giving them an excuse to raise my interest rate, no other explanation would account for them making no attempt to contact me as they have all my contact information. It seems our system has become very corrupt! I will no longer due business with Chase and will watch my other accounts very closely. Buyer Beware!!

[Bruce Nelson]

I just received an email notifying me of a change to my HSBC Best Buy Credit Card Agreement. In addition to interest rate changes (no problem for me as I pay in full each month), they are changing the grace period for new purchases. They will now assess a finance charge if the balance is not paid within 23 days of the billing date. However, the due date on the statement is 26 days from the billing date. So, one can make a purchase, pay in full before the statement due date, but still be assessed a finance charge.
This seems to be a very deceptive practice. I called HSBC customer service to confirm my understanding of the change and was told that I was correct. Of course, I could refuse to accept the change to the agreement, but my card would no longer be valid for new purchases.

[Marsh]

I've had a Chase Charge card for over 20 years. I've never defaulted on any payments due by having my payments taken directly from my checking account every month. I've also never charged anything on this card unless it was at a time that Chase offered me a special interest rate for the duration of the balance due. My credit limit is about 30 grand. I have an $11,000.00 balance on the card which was primarily education expenses for my grandson...my payments have ALWAYS been 2% per month which on $11,000.00 is $220.00 a month. I got a notice the other day that they have raised my monthly payment from 2% to 5% !!! Now the payment is $550.00 !!! I called them...they were rude...offered me absolutely no help...told me if I didn't make the new payment amount that they would consider the account in arrears and raise my interest to over 25% ! She of course told me what a wonderful opportunity this was to now get my balance paid down faster...BULLLLLLSHYTTE....they are just pyssed because my interest rate is only 4.9% currently!

I'm getting great pleasure now by getting a home equity loan on my paid off home in order to shove a balance paid in full check up their nose...and will never do business with this company again...I don't care how big they think they are !