Credit Card Interest Rates: The Fix Is (Not) In

Francine L. Huff
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

Being late with just one payment can lead credit card companies to raise a customer's interest rate. And that's exactly what is happening to many people who are struggling to pay for credit cards and other bills. Credit card rates are such a hot-button issue that regulators are looking for ways to better control the credit card industry. Here's what savvy consumers need to know about credit card interest rates.


Credit Card Rates Can Change Anytime

Many people neglect to read through the fine print on their credit card contract. But the information contained in the contract usually includes a clause that gives credit card companies the right to raise interest rates at any time. The reasons for those rate increases can include late payments, exceeding the credit limit, or having too many credit cards. Some companies will even raise interest rates if a cardholder is late with paying other, unrelated bills, a practice that is called "universal default."


Regulators, Legislators Propose Changes

Because so many people are struggling to keep up with rising credit card payments, proposals have been made to reign in the credit card industry. Consumer advocates are pushing for more disclosure about credit card practices, and urging the federal government to set firmer rules for when rates can be increased.


Right now, cash advances often come with higher interest rates, and your bill may include cash advances and purchases. However, your payment may be applied first to purchases, which have lower rates. Proposals in the Federal Reserve, House, and Senate want credit card payments to be applied to debts that have the highest interest rate first. Proposed reform also includes increasing the amount of time required between the statement mailing and payment due dates from 14 days. The Federal Reserve also proposes that credit card rates only be increased if cardholders are more than 30 days late with their minimum payments. Needless to say, credit card companies aren't keen on these proposals.


What Can Cardholders Do?

Here are some ways credit card customers can keep their payments down:


·        Always make payments on time. It's best to mail payments at least seven days before they're due to make sure they get there on time or pay your bills online.

·        Avoid charging up to a credit card's limit. Accidentally going over and tapping too much credit results in over-limit fees and possible rate increases.

·        Use balance transfer offers to pay off high-interest debt. But keep in mind that just one missed payment will send that promotional rate up.

·        Call credit card companies to try and negotiate lower interest rates.

·        Check your statements each month and read anything your company sends you. The rate you are being charged might not be what you think you are paying.



New York Times

"Citigroup Considers Repealing a Pledge, and the Slogan with It," by Eric Dash, www.nytimes.com.


New York Times

"Credit Card Overhauls Seem Likely," by Jane Birmbaum, www.nytimes.com.


About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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