If Your Credit Card Interest Rate is Increasing....
This is a turbulent time in the credit card industry. Most credit card issuers are division banks which are under financial pressure after large losses with subprime loans. They are also losing money because an increasing number of their credit card customers are having their own financial struggles and defaulting on credit card loans. Meanwhile Congress, fueled by complaints from the public, is conducting an investigation and demanding changes. The tension has heightened as some issuers increase rates during a time that the Federal Reserve is dropping rates to help
consumers and the economy.
Despite a cut of 2.25 points in the federal fund rate since September, some of the more popular cards have barely budged with their variable rates. The rate for Blue from American Express was 12.24% in September, dropped to 11.74% in October, and is currently back up to 12.24%. Chase Freedom actually increased its rate from 14.24% in September to 17.24% in January. Bank of America has also received public criticism for recently notifying customers about rate increases even though they are current on their payment and have maintained their credit score.
"We are in an environment where credit card companies seem to be increasing rates based on their own financial needs, and not because of an increased risk or action by the cardholder," says Bill Hardekopf, CEO of LowCards.com. "As banks continue to deal with large losses, they are aggressively searching for a formula that includes higher rates and fees that will help maintain their revenue. This is not a good situation for many consumers that are already struggling to pay for a mortgage and credit card debt."
Here are some tips on what to do if your credit card rate
increases:
* Pay attention to your mail and notices from your credit card company. Some cardholders are receiving a mailed notice of a rate increase and being given the choice to either close the account and pay off the balance at the current rate, or keep the card and pay at the increased rate. If you choose to close the card, they give you a short deadline to mail an "opt-out" letter to them with your request to close the card (you must write a letter, they do not send you a form). If they do not receive your "opt-out letter", they will automatically increase the rate.
* Every month, look at your APR on your monthly statement. If your rate increases, call and ask for a lower rate. If you have a good credit score and good payment history, don't quietly accept the rate increase. You have some room to
negotiate. If they don't lower your rate, then it is time to comparison shop to find a lower rate card.
* Check your credit report, It is possible that your rate increased because of a change in your credit report, or your credit score dropped. Look for errors that should be corrected, or changes that you can make to improve your
score.
* Shop around for a card with a lower rate. While issuers seem to follow each other with rate and fee increases, this is still a competitive industry. If you have a good credit record and score, you should switch to a card with a lower
rate.
"Don't just apply for the first offer you receive in the mail that advertises a low rate. Take time to comparison shop and look at the terms and conditions for each card," says Hardekopf. "Credit applications show up on your credit report, so choose one or two cards. If you still don't like the offer, cancel the cards, check your credit report to see if there is a reason for your higher rates, improve that,
then apply for another card in 6-12 months."
* If you are in a situation where you are stuck with the rate and the card, contact your issuer to work out a payment plan. It is in their best interest to keep you paying something toward your debt, instead of defaulting on the
loan.
* If you choose to close your account, inform the issuer in writing with a letter sent by certified mail. Get them to acknowledge that you are the one closing the account. Keep a copy of the letter and the "closed by customer" acknowledgement in your personal records. If you pay off your balance, also keep a copy of the check. After the account is closed, cut up the credit card so that you won't accidentally use it again.
consumers and the economy.
Despite a cut of 2.25 points in the federal fund rate since September, some of the more popular cards have barely budged with their variable rates. The rate for Blue from American Express was 12.24% in September, dropped to 11.74% in October, and is currently back up to 12.24%. Chase Freedom actually increased its rate from 14.24% in September to 17.24% in January. Bank of America has also received public criticism for recently notifying customers about rate increases even though they are current on their payment and have maintained their credit score.
"We are in an environment where credit card companies seem to be increasing rates based on their own financial needs, and not because of an increased risk or action by the cardholder," says Bill Hardekopf, CEO of LowCards.com. "As banks continue to deal with large losses, they are aggressively searching for a formula that includes higher rates and fees that will help maintain their revenue. This is not a good situation for many consumers that are already struggling to pay for a mortgage and credit card debt."
Here are some tips on what to do if your credit card rate
increases:
* Pay attention to your mail and notices from your credit card company. Some cardholders are receiving a mailed notice of a rate increase and being given the choice to either close the account and pay off the balance at the current rate, or keep the card and pay at the increased rate. If you choose to close the card, they give you a short deadline to mail an "opt-out" letter to them with your request to close the card (you must write a letter, they do not send you a form). If they do not receive your "opt-out letter", they will automatically increase the rate.
* Every month, look at your APR on your monthly statement. If your rate increases, call and ask for a lower rate. If you have a good credit score and good payment history, don't quietly accept the rate increase. You have some room to
negotiate. If they don't lower your rate, then it is time to comparison shop to find a lower rate card.
* Check your credit report, It is possible that your rate increased because of a change in your credit report, or your credit score dropped. Look for errors that should be corrected, or changes that you can make to improve your
score.
* Shop around for a card with a lower rate. While issuers seem to follow each other with rate and fee increases, this is still a competitive industry. If you have a good credit record and score, you should switch to a card with a lower
rate.
"Don't just apply for the first offer you receive in the mail that advertises a low rate. Take time to comparison shop and look at the terms and conditions for each card," says Hardekopf. "Credit applications show up on your credit report, so choose one or two cards. If you still don't like the offer, cancel the cards, check your credit report to see if there is a reason for your higher rates, improve that,
then apply for another card in 6-12 months."
* If you are in a situation where you are stuck with the rate and the card, contact your issuer to work out a payment plan. It is in their best interest to keep you paying something toward your debt, instead of defaulting on the
loan.
* If you choose to close your account, inform the issuer in writing with a letter sent by certified mail. Get them to acknowledge that you are the one closing the account. Keep a copy of the letter and the "closed by customer" acknowledgement in your personal records. If you pay off your balance, also keep a copy of the check. After the account is closed, cut up the credit card so that you won't accidentally use it again.
Posted by Lynn at
1:08 PM
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