Though all credit card companies intend to make a
profit, some can be downright mean. They may offer an attractive interest rate
and keep this rate until you've spent a heavy amount of money. And once you're
on the hook with a fairly large credit card balance they hike the rate up on
you. At that point you're in a jam, making your interest rate
skyrocket while you owe too much to avoid it.
Barely Legal
You might be onto something if you think this
sounds like something normally practiced by loan sharks. If it swims
like a shark and bites like a shark then it just might be a shark.
In
many countries, rate hiking is illegal, as it isn't considered fair to raise
interest rates after debt has been
incurred. However, in the United
States and some others, you might not have a
legal leg to stand on – your card issuer can do what they like to you. This is
because, at least here, credit card companies may be based in states like
Delaware that
have ineffective usury laws.
Rate Hike ‘Triggers
Credit card companies do give reasons for any rises,
some of which are valid. However, there are ones which seem highly unfair.
Moreover, a lot more sharing of information goes on in the financial industry
than you'd expect. Here are some examples of things that can saddle you with the
extra-high ‘penalty rate’:
Paying late. If you don't pay your bills on time, the
company will take away your attractive rate. This one is fairly valid, as you
have broken the rules of your contract.
Bouncing checks. This is an action which is recorded in
your credit report, and may be acted upon by your card
companies.
Spending
on other cards. If you spend heavily or incur penalties on one card, don't be
surprised if another hears about it and raises your rates because of
it.
Defaulting on
another bill. Similar to the last trigger stated, bills you don't pay get put on
your credit record. The next time your issuer checks your credit rating (they
usually do it quarterly), they'll spot it and want to raise your
rate.
Understand that
most credit card contracts only require the lender to give you about two weeks
notice. Further, as these companies share information, when one of your cards’
rates go up, they'll all go up. This is a good reason to be wary of credit cards
in general.
What Can You Do If It Happens?
If you do experience a rate hike, the first
thing you should do is try to cancel the card and move the balance elsewhere. If
for some reason you can't do that, contact your local consumer protection
agencies. If that too fails, the next step is to get a lawyer (an expensive
affair, so avoid if possible).
Also, never be afraid to make yourself heard. If you
mail to that company, and the regulator, and local media networks complaining of
your problem, then you might make give enough incentive for that company to
lower your rate simply to keep you from being a hassle (or bad
PR).
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