December 09, 2008


Many consumers have found an unexpected/unwanted surprise when opening their credit card statements this holiday season ... one of the most perplexing changes has been a general raising of interest rates (while other major rates have been dropping). The rationale? "A difficult market environment." Another common change (not as surprising) has been a reduction in credit limits; as you are likely aware, if you carry a balance this [lower credit limit] will negatively impact your credit score as the result will be a higher debt ratio (the proportion of your balance in relation to your credit limit). For many, these "surprises" have come even though no late payments have been made. According to Consumer Action, nearly half of banks now penalize cardholders for changes in their credit history with default rates up to 35%.

This is particularly troubling given that roughly a year and a half ago, Citi and others agreed to ditch this dispicable practice of hiking rates at any time for any reason when they told a Senate panel that they were going to give up that practice. Well, with these 'difficult times' they've changed their mind. Credit card holders are getting squeezed to make up for poor lending decisions made in housing, private student loans, and other areas. The Federal Reserve started pushing last May for new rules that would stop these types of practices as would the proposed Credit Cardholders Bill of Rights that I recently wrote about.

Although credit card companies can currently raise your rate for any reason, results of a recent Consumer Action survey outline the more common 'triggers' of interest rate increases (*the survey analyzed 146 cards from 47 different issuers):

- Credit score gets worse (90.48%)
- Paying mortgage, car loan or other creditor late (85.71%)
- Going over credit limit (57.14%)
- Bouncing a payment check (52.38%)
- Too much debt (42.86%)
- Too much available credit (33.33%)
- Getting a new credit card (33.33%)
- Inquiring about a car loan or mortgage (23.81%)

ADDITIONAL RESOURCES (Prior Financial Tip Blog Posts):
o Credit Card Balance Transfers
o Credit Card Selection
o Credit Card Trap Widens
o Credit Cardholders' Bill of Rights
o Debit Card Realities
o Negotiating a Lower Credit Card Rate
o Proposed Credit Card Changes
o Risk-Based Re-Pricing
o Schumer's Box
o Understanding Your Credit Card Statement