Credit Card Interest Rates Can Rise on a Whim

The average American household owes thousands of dollars on their credit cards. Given that the average interest rate on a credit card is currently in the 18% range, the monthly payments that card-issuing banks receive should generate pretty substantial profits. Those profits are substantial, especially when combined with the fees that merchants pay to accept the cards for purchases in the first place. The growth of the industry, and subsequently, growth of profits, has slowed somewhat since the Federal government mandated higher minimum monthly payments for credit card customers last year. Since the average minimum payment has doubled, to about 4% of the outstanding balance, many customers have started to pay down their balances. When balances go down, so do profits.

If the balances are going down, how can the credit card companies increase their profits? It’s easy; they just raise the interest rates that they charge their customers. Customers may find their interest rates increasing to as much as 30% per year for any of the following “transgressions”:

Paying your credit card bill late. In addition to a late fee that may amount to as much as $39, a late payment will probably cause an increase in the interest rate on the card.

Paying any bill late. A clause found in many cardmember agreements, called the “universal default clause”, allows credit card companies to increase interest rates if you make a late payment to nearly anyone. This might include a mortgage, car loan or even a utility bill.

Getting too close to your limit. If you find your balance creeping up close to your limit, your card issuer may decide that you are now a “risky” customer and may increase your interest rate accordingly.

Not using enough of your limit. Banks want you to use the credit cards. Having too much credit could also trigger an interest rate increase.

Any, or no reason at all. Most cardmember agreements permit the issuing bank to raise interest rates for any reason at all, even for accounts with so-called “fixed” interest rates. The only legal requirement is that they provide you with fifteen days written notice.

How can you avoid having your interest rate increased to 30% per year? In some cases, it will be unavoidable, in which case you should consider applying for another card. Otherwise, you should be diligent about paying all of your bills on time and make sure that you remit at least the minimum amount due. If you have a card that has a high limit that you rarely use, you might consider asking the company to lower your limit. If you have a high balance, you might look into transferring some or all of that balance to another card. You might even consider taking out a loan to pay down the balance.

Credit card companies are becoming more and more eager to find reasons to raise interest rates. The last thing you want to do as a consumer is to make it easy for them to do.

©Copyright 2006 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to