Credit Card Report
Financial News Made Easy

“December is a big shopping month. Stores, advertisers and sometimes even the president are urging shoppers to spend more. But if you shop with a credit card, as most Americans do, dangers lurk that few consumers realize could damage their financial future.”

That’s according to Sen. Carl Levin (D-Mich.), as reported by the Los Angeles Times:

In a contentious hearing, Sen. Carl Levin (D-Mich.) grilled executives from Discover Financial Services, Bank of America Corp. and Capital One Financial Corp. about the industry’s practice of raising customers’ interest rates because their credit rating had fallen, often simply after opening another credit card account.

He also criticized the companies for either failing to notify customers about the rate increase or sending them a lengthy, unclear letter about the change.
- Source: Senators weigh credit card legislation, Los Angeles Times, Dec. 5, 2007 [1]

The Senate Committee on Banking, Housing and Urban Affairs is looking into the problem:

Tuesday’s hearing was the second the panel has held on what Levin described as “unfair credit card practices.” After the first hearing in March, he introduced legislation to restrict the ways credit card issuers can increase interest rates.

The bill, now before the Senate Committee on Banking, Housing and Urban Affairs, would, among other things, prohibit companies from increasing the rate on individuals who have paid their debt on time, and would limit penalty rate increases to seven percentage points above the current interest rate.
[...]

During the hearing, the panel heard from consumers who had charged close to the limit on their cards but had made the minimum payment, and often more, on time each month for at least two years. Despite that, they were hit with an interest rate hike.
- Source: Senators weigh credit card legislation, Los Angeles Times, Dec. 5, 2007 [2]

Take control of your Credit Card

Best approach? Don’t wait for the Senate Committee bill. Instead, follow the advice given by Gerri Willis:

1. Scrutinize your statements

   First, realize that your credit card issuer can change your rate at any time, for any reason. And you should receive written notification that your rate is changing.

   Card issuers have to send a separate notice if it was a change in terms. But if the issuer already disclosed in the cardholder agreement that your rate could change under certain circumstances, you’ll get the info in your statement. You’ll need to know what rate you’re paying.

   And you should scrutinize every statement. The change in your interest rate may not necessarily come on a separate piece of paper. It may be buried somewhere on your bill.

2. Lower your Rate

   The good news here is that you do have options. First, if you’ve found out your rate has been raised, but you’ve been making on-time payments consistently, call customer service and see if you can get your original rate. Some of the witnesses at the hearing were able to get their interest rate knocked down.

   But otherwise, take heart. Two major credit card issuers - JP Morgan Chase and Citigroup have already announced they will do away with this practice or raising interest rates based on credit scores.

   Chances are, you’ll be able to negotiate if you pit issuer against issuer and threaten to transfer your balance to one of these other cards according to Curtis Arnold of Cardratings.com. And, chances are that these other cards will follow in Chase and Citi’s lead.

3. Monitor your Credit

   It seems that everyone else is checking your credit score. Now is the time to monitor your credit.

   First, get your free credit score if you haven’t done it this year. The website you want to go to is annualcreditreport.com.

   Next, make sure you know what some of the biggest credit mistakes are. If you open up a retail store credit card for example your credit score could drop.

   And charging up to your credit limit will also hurt your score. To find out what can help or hinder your score, go to myfico.com.

   Another fee to keep your eye on is the balance transfer fee. These fees have gone up 300% to 400% this year alone. You’ll want to look for offers that are capped at $50 to $75.

- Source: Battling rising credit card interest rates, CNNMoney.com, Dec. 6, 2007 [3]

Sources

1. Tina Marie Macias, Senators weigh credit card legislation, Los Angeles Times, Dec. 5, 2007
2. Ibid.
3. Gerri Willis, Battling rising credit card interest rates, CNNMoney.com, Dec. 6, 2007